Federer was penalized points for not playing enough 500 events, is this fair?
Should seeding system be more about quantity or quality of play?
Yes it is fair that he was penalized, because other players were penalized too. 18 events in 10 months is not asking a lot of these players, especially considering that lower ranked players usually play up to 30 tournaments a year to get their best results.
The seeding system rewards quality of play, the farther you get in a tournament, the more points you earn. If you play high quality tennis, you only need to play 18 events.
Funny, you never seemed concerned about this issue before Fed dropped to #3, so let's not pretend that you want this reasoning to apply to any player other than him. Seeding him #1 would not have prevented any of the losses he's had this year, people other than Nadal have beaten him.