I'm really good at Guitar Hero - not the best, but the best of my circle of friends. Beat every song on expert on Guitar Hero III except "Through the Fire and Flames" and the Devil battle.
I also have eight years of guitar playing (mostly original compositions in a few indie rock and punk bands) and six years of violin/fiddle from when I was younger (classical ensembles and quartets).
Interestingly, I think that I use what I learned from violin playing more when I play GH. That's because you know what I realized GH really is?
Sight reading.
It's vertical sight reading instead of horizontal, but still the same thing (and better in some ways, since you don't have to flip your own pages). Being able to see a line coming and mentally prepare my fingers for the actions they're about to perform is exclusively what I did on violin (not so much on guitar).
You're right about the big difference between guitar and guitar-hero, of course - five buttons does not equate to six strings and 22 frets as far as movements your hands make. However, Guitar Hero is great for teaching two things that definitely come in handy for work - coordination of two hands (one strumming, one making movements on the fretboard), and proper timing (because I'm sure you're annoyed as I am when you're trying to jam with a guitarist that has no rhythm).
For people who are just learning the instrument and may be interested in reading tab or musical score, the sight reading aspect of GH is valuable as well.
The learning curve is definitely steep (as with all instruments), but I have personally witnessed two people pick up real guitar because of how much fun they have with GH. Seems that they're sticking with it, too.