> Lets say you are mining a coin with difficulty of 2(or even less).

1) You don't mine "coins".  You mine "blocks".
2) The difficulty of finding a block is set by the network, based on total hash rate, and is currently around 1.5e9 (1.5 US billion).
3) The entire purpose of a mining pool is to reduce the variability to miners by rewarding them more consistently for finding less difficult blocks.  A block that meets the 1.5e9 difficulty also happens to meet a smaller difficulty, such as 2, so if everybody is mining for blocks of difficulty 2, eventually someone will find one that meets the higher difficulty (probably).

> The miner is chugging along at difficulty of 1000.  Would it not reduce the pools chances of finding blocks?

No, it reduces the number of blocks reported by the miner to the pool.  But since the miner is at 1000 and the pool is at 2, the pool will reward the miner 500x a normal difficulty 2 block for every difficulty 1000 block it produces.

> Also, wouldn't the number of rejected blocks increase drastically?

Not at all, as long as the miner keeps current on transactions and timestamps.