A lot of people (thought granted not everybody) find that after spending some time in a collaborative environment the background conversations move from being a distraction to an undercurrent of information. It becomes possible to tune it out but still hear keywords that might be relevant and allow for better teamwork.

That's true but your way has high latency. Conversations happen much faster.

I would agree with you if not for the growing trend of collaborative spaces in the IT industry. Sitting isolated in a cubicle and only talking to other people in meetings or the water cooler is no better than working from home and Skyping or talking on the phone. But a collaborative space and pair programming do foster innovation and rapid, high-quality software development. The social aspect yields interesting ideas that the individual would not think of on his (or her) own. Pairing (or at least having extra eyes around) tends to yield higher quality both from being able to have someone check for mistakes and the social pressure of not cutting corners when someone else is looking.