So now I'm having to go out of my way to make sure you stay on track.
No; if you're a manager, you should be monitoring employee output in any case. Just assuming that because they're in the office they're being productive is silly.
Why wouldn't I just hire the gal I interviewed before you who is willing to come into the office everyday?
You would, unless she's less capable of doing the job.
I don't need to have a daily Skype meeting if you're in the building just down the hall.
No, but with agile software development, you're going to be having daily stand-ups anyway. It's trivial to set up a quick videoconference call for this.
every staff meeting I have needs to be online so that you can listen in
Pretty much, and at a place where I recently worked, we did just that. Wasn't a problem. People were usually sitting at their machines already and able to accept the call in seconds. Heck, it was probably quicker than setting up an in-person meeting!
I don't get to read your body language during the meeting.
You shouldn't need to. This isn't a date; if an employee can't express themselves clearly through text and speech, there's a problem. Although with videoconferencing, you even have a partial visual of them.
I don't get to chat with you after the meeting about a project without asking you to stay on the line or calling you when I get back to my desk.
You aren't going to participate in any of the local team building exercises that require face to face interaction.
They're probably overrated, but work-from-home staff could come in specially for such things.
I can't assign you to any projects where I need someone to sit down with the customer face to face.
Again, work-from-home staff can come in specially for such things. Yeah, they wouldn't be suited for very regular customer meetings; that would be an obvious argument at interview stage against work-from-home, but I doubt it would apply to most developers.
The rest of my team will have increased workload because they are dealing with the drive-by requests while you avoid them at home.
What are drive-by requests? Are you working at McDonald's? If you mean "distractions by people coming up to you and asking you stuff needlessly", then good. Managers should let staff avoid them because they lower productivity.
If I assign the best work to the people 30 feet away from me because they are easier for me to work with and get constant updates, you see that as favoritism.
If you need "constant updates" - more constant than agile-style daily updates - you're an obsessive micromanager and I'm glad I don't work for you. You would be the biggest distraction of all.
Remind me how I as a manager benefit from having you work at home?
Some employees, myself included, are more productive working from home as we are quite sensitive to noise and even movement (if you have an open plan office and a lot of people walking around). So there's that, as well as the extra time that employee can put into working where they would otherwise be commuting. Both of these should benefit your business.