"...oh and the app still works, there's no new features, and just a few new bugs."
Nobody thinks that doing 200 improvement passes on functioning code base is a good idea. The prompt tells the model that it is a principal engineer, then contradicts that role the imperative "We need to improve the quality of this codebase". Determining when code needs to be improved is a responsibility for the principal engineer but the prompt doesn't tell the model that it can decide the code is good enough. I think we would see a different behavior if the prompt was changed to "Inspect the codebase, determine if we can do anything to improve code quality, then immediately implement it." If the model is smart enough, this will increasingly result in passes where the agent decides there is nothing left to do.
In my experience with CC I get great results where I make an open ended question about a large module and instruct it to come back to me with suggestions. Claude generates 5-10 suggestions and ranks them by impact. It's very low-effort from the developer's perspective and it can generate some good ideas.