I was recently on vacation and I toured a brewpub in the Chicago area. I was surprised to find out that they are extract brewers. Is this common practice for small brewpubs? Would this place a limit on caliber of beer you could produce?
I don't think its common practice, but there are several extract breweries out there.
The most important factor influencing beer quality at the homebrew and the professional level is fermentation control. That includes temperatures, ptiching rate and yeast health and management.
These things would be the same for an extract brewery or an all grain brewery. I am certain then that if those aspects are being mastered there is not limit to the quality of the beer they can produce.
The only limitations with extracts is recipes that require the addition of mashed adjuncts or of ingredients (oats or other flaked cereals come to mind). Extract brewing limits the amount of control you have over the wort's mash profile. You can always thin an extract a bit with sugars or careful control of pure amylase enzyme additions. However, the opposite is a bit tougher; although I am sure you could order pure dextrins and the like to boost body if need be.
But if you amend the styles of beer you want to put out of your brew house, there is no reason to think you can't produce award winning beer with extracts at any scale of operation.
I know of one place in the entire San Francisco Bay Area, the Pacific Coast Brewing Co, that brews extract beers. The brewhouse is tiny. They've been doing it that way for 20 years. Many of their beers were decorated with bronze & silver medals from GABF in the mid-90s. While uncommon, you can make good beer.
I visited Oakland in 2008 to judge the Sam Adams Longshot competition right across the street from Pacific Coast. I was not impressed with their beers and most of the other judges poo-pooed them for brewing extract. People who know beer may turn up their noses when they find out your brewpub "cheats".
I think the number of beer competition medals won by both commercial and homebrew extract beers proves that you can certainly brew excellent beer from extract.
That being said, I think you do have to have a bit more advanced technique than an all-extract homebrewer might use. For example:
Extract doesn't have to mean simple.