What Paul Graham says is absolutely true. But further to any H1B reform, you need a bit more fundamental attitude change as well. Speaking as someone who is closer to the US than most (Canada), I think the Silicon Valley powers that be are way too hung up on American institutions.
In my case, I went to the University of Waterloo in Canada. Not b/c I couldn't get into one of the top US schools had I tried (e.g. did well in math contests, including scoring 9/15 on the AIME), but due to various circumstances, going to Waterloo is what made the most sense for me and my family at the time. And there were many other students who "settled" for a local school instead of going to the US as well. Anyway, my point here is not to "talk about my self" - but to simply point out, there are people who "could have" gotten into the top US schools if the circumstances were different. Just b/c people from different backgrounds/schools doesn't mean they are of a lesser standard than someone who may have graduated from a MIT or a Stanford. They could be worse, or sometimes, they could even be better.
But, as things stand now, if you try to make waves in the valley, someone coming from MIT, Stanford, etc. has a certain artificial "aura" that may not be shared by alumni from some of the foreign (but locally reputed) schools - at least for the first stage of the process. This attitude has to change as well.