One thing I've been wondering for a long time when I see the quasi-sado-masochist relationship between engineers and hiring processes is: are bad hires that 1) costly, 2) frequent ? In my 12+ years career, I've worked with so-so engineers, but never truly bad ones that would ruin a project. And even the ones that weren't great, what damages did they really cause? I've seen many more companies failing because of a bad…
I would say bad engineers tend to know they are bad and either tend to go into managing, coordination roles or grab a subset of tasks they get good at, like being the only one on the company working with eg. a specific third party system and doing support and integration for that.
Bad engineers that have worked with the same system for three years are way better with it than super-engineers that have never touched it for at-least a couple of months.
As you said, I have never really had problems with bad engineers messing things up.
EDIT: Reluctance to hire engineers and saving pennies for a dollar on the other hand have messed up some projects.