This is a fantastic move by the YC folks. Doing the class at Stanford raises their profile in just the right place -- now more of just the right and able individuals will apply to YC (especially because YC basically "teaching" at Stanford has earned them validation as a place to go for Stanford students, who up til now may have had any reservation about joining YC, or just simply hadn't considered the possibility, or…
Do those people care about Stanford? The founders of neither Dropbox nor Airbnb attended Stanford, for example. Evidence thus far seems to indicate that elitism isn't the right metric to optimize for. That said, there's certainly a large talent pool concentrated at Stanford.
Keeping YC a meritocracy seems important, so hopefully it won't become something else.