As you phrase it, no, it is absolutely not true.
Sites are rejected if they do not add anything to the category. This includes sites that are broken or under construction, sites that contain the same content as other sites that are already listed, and other sites that don't give the surfers any information of value. Very occasionally, a site may also be rejected if the site owner has behaved very badly in relation to the directory, but those are rare exceptions and most editors will never encounter a site like that.
Ranking is something that never should play any part whatsoever in the editor's judgment of a site, positive or negative. Remember that we do not list sites for the site owner's or webmaster's sake, we do it for the surfers.
Many people who suggest sites for review believe that their site has been rejected, when in reality it simply hasn't been reviewed yet. Not having been reviewed is a very different thing from having been rejected for inclusion, but the action from the person who suggested it should be the same: Don't suggest it again.
Hope this helps.