It's true, but it's also just part of the way the world works. It's not just Silicon Valley. The big difference there is that Smart People have far more of a chance of first succeeding because software is "hard", and requires smart people in the first place to do anything useful.
1. By definition, most of the population is not-so-smart. (Please note, this does NOT mean smart people are better than everyone else, just smarter)
2. It takes smart people, and often times a particular kind of smart person to distinguish the smart people from the not-so-smart, but overly confident people.
3. People are heavily biased towards confident people. Confidence everyone can recognize. (as evidenced by the rise of Sara Palin, who has no business being confident, but yet was/is beloved by a certain segment of the populace).
4. There's an inverse relationship between skill and confidence. The more skillful people become, the less confident they are. (Primarly because they realize how much they really don't know).
http://en.wikipedia.org/wiki/D...
So given the above, it's a natural tendency as a company grows that it'll start to get filled with people who aren't quite as smart as the founders. It's really inevitable at a certain point of growth because you'll just need more people, and a larger percentage of them will be not-so-smart. They'll start promoting the confident, but less skilled people because of point 2 and 3. This will create a feedback loop (less smart promotes even less smart people), and eventually the company is filled with morons who coast on the success of others. (i.e. Microsoft).