His point seems twofold: 1) The availability of funding in the Bay Area tempts people to take it whether they need it or not, and 2) The competition for top talent is stronger here than anywhere else.
The first point, on funding, is news to me. Yes, the availability of VC here is correlated with more Bay Area startups being funded. It doesn't mean that your startup will automatically be funded just because you're located here - the competition for funding is as strong as the competition for talent.
I meet people doing self-funded startups all the time. The differentiator is whether you want to be the next Facebook vs. traditional profit model. Yes, the funded web-2.0-ish startups get most of the press here, it doesn't mean that no one is doing it another way.
Yes, the competition for talent here is fierce. Right now I'm looking for a CSS expert, no programming required, and even that is nearly impossible to find. However, I know I will find someone sooner or later because I'm located in SF. I shudder to think how hard this would be if I were in St. Louis or something, or even a less tech-centric city like Chicago. A few weeks ago I needed an expert Flex hacker to help with something I'm building, so I just called up my friends until I found one. Try doing that in the midwest. Also, I'm at the kind of small, traditional-profit-type company that DHH so admires.
Hackers move here because SF is the best place on earth to be a hacker, and that fact mitigates in your favor when looking for talent.