A friend sent me a pointer to this blog post: http://econlog.econlib.org/archives/2011/11/how_elite_firms.html
The original paper is about hiring practices in financial institutions, but the fact that the best companies prefer applicants from the best universities (much in the same way the top grad schools mostly accept people from the top undergrad schools) is a recurring complaint in software industry as well.
In all cases the preferential treatment is driven by selectivity of the school, not so much by the quality of skills developed there: the idea is that since colleges are highly selective, you can apply them as the first filter to the applicant pool. The system then continues - the resumes from the candidates working at the top companies draw more attention than the resumes from lesser brands, and so it goes.
Which means that if you missed out on a good school early on, you are kinda screwed; while upward mobility is not impossible, it becomes much, much harder.
A long time ago I experienced something similar myself. When I came to the United States, I took the GRE and applied to several top graduate programs in physics. My GRE scores were far, far above the published average scores for all of these programs except MIT, where it was closer to (but still above) average.
In the Soviet Union where I was from, test results were the only allowed criteria for admission. There was no concept of reference letters, legacy status, nor other out-of-band information that would feed into the decision making process. In fact, anything resembling legacy considerations were considered corruption and would earn all involved parties a one-way, all expenses paid, trip to Siberia's finest labor camps (corruption did of course exist, and when discovered it was dealt with harshly; one of the people on my alma mater admission committee ended up in jail for bartering admissions spots for favors from other well-connected people).
Imagine my surprise when I got the rejection letter from UPenn - UPenn! - where the average subject GRE score was in 600s! At the time I did not know what a "safety school" was, but if I did I have thought about it as such at the time. I only applied to UPenn because I lived in Philadelphia at the time, all our relatives lived there, and I needed to show that I was not dismissing the idea of staying "close to the family" outright.
Completely baffled, I wrote them a letter, pointing out the huge discrepancy in the scores and asking them to explain the decision. Soon I befriended another Russian who had emigrated a year earlier and who filled me in on admission practices in the US. According to him, most of the people in the theoretical physics department at Princeton did not even take the GRE - which was listed as a requirement.
Instead, they were being accepted based strictly on references from their undergrad professors. And because people from the top grad schools knew people from the top undergrad schools, their references were trusted far more.
I, on the other hand, was completely unaware of the relative importance of the references, so I got them from random people who were unknown to the admissions committees, and so my application was roundly rejected - the letters from all the other schools arrived a bit later. (UPenn later reversed its decision and accepted me - they must have read my letter and decided that a guy so naive would end up living under a bridge were they not to save me).
But I digress.
This system of course leads to very high rate of false negatives - essentially, first strike out. Also, not surprisingly, it results in some amount of false positives as well - once inside, you have a larger than normal share of opportunities to recover from previous failures - regardless of your skills, that degree from Harvard will keep opening doors for you years from now.
The system is obviously sub-optimal, so over the years we tried our best to fix it. Microsoft pioneered the concept of a coding interview - where people are forced to write code on the whiteboard as part of the interview process, a system that is now standard almost everywhere.
This is infinitely better than hiring people based strictly on their resume and some feel-good conversation during the interview, but it is not entirely fool-proof.
First, it emphasizes a set of skills - specifically, algorithm design - that are not all that frequently required in the actual jobs that people do. Ask yourself, how many times have you had to write quick sort, a hash table, an AVL tree, or a read-write lock implementation at work (and if you did, I would really be interested to know why :-)). The vast majority of people - especially those who work on maintaining very large code bases - like Windows - simply do not get the opportunity to exercise their algorithmic muscle very often.
Yet these are all fair questions during the interview. Don't get me wrong - I BELIEVE that these are fair questions, and I ask them myself: even if you don't need to code hashtables every day, it still helps to know how they work.
For example, I ran into a situation at a hiring committee at Google where an interviewer was unhappy that the interviewee could not find an O(1) solution to a problem that - as far as I was concerned - did not have one. When I asked how exactly could one solve it in O(1) time, the person said - why, by using a hash, of course! Put a person who is convinced that a hash always exhibits O(1) performance on an OS component, and you are in for a number of interesting and intractable performance bugs down the road.
So knowing algorithms and data structures well is very important, but our jobs are not preparing us for that. Which is why I found that often hiring a person from college - especially, an elite college - is easier than hiring a person from the industry - they have not yet had time to forget the theory.
Also, knowing the things that are testable in the coding interview - algorithms, design practices, etc - is necessary, but not sufficient for engineering stardom. I've seen - and hired! - a number of people who were fantastic during the interview, but were very ineffective when they needed to deal with a real engineering problem - such as fixing a complex bug in a large system in a way that does not break existing functionality. To this day I have no idea how to do a practical examination of this skill in an interview setting!
Therein lies the cornerstone problem of the software industry, which I will summarize thus:
1) Success of a software company is dependent on hiring great people. A star software engineer is an order of magnitude more productive than an average engineer, but costs only marginally more. Thus there is a huge incentive for companies to hire the best of the best.
2) Many qualities of the best of the best engineers are very hard to measure directly. We can test problem solving, knowledge, and design skills during the interview, but we are forced to rely on a candidate's word when it comes to equally important qualifications such as ability to face ambiguity, passion, leadership, and working with others.
3) There is a huge pool of candidates. The resume databases at the top companies have literally millions of entries. Most of the resumes are "enhanced" for "quality".
4) Vast majority of the candidates are not... well, they are not in the top 10% :-). They may be enough to perform a lot of the jobs adequately, but they are nowhere near the productivity of the best of the best (see #1), and once the job for which they were hired is done, they may not be easily transferable to a different one.
5) Firing someone from a big company requires a lot of work, is a very lengthy process, and so the cost of false positive is very high - both in the company's bottom line as well as in morale of the team.
So... what do we do? How do we even screen the resumes - in a fully meritocratic system that pays no attention to selectivity of the previous places of work or study - given the pure amount of BS in an average sample?
The existing system that relies both on the selectivity of the environment as well as on the interview performance works in the sense that everything else we tried was worse.
After all, I do not ever see anything near the stuff people reported on this thread at work: http://www.reddit.com/r/AskReddit/comments/mk7yn/managers_supervisors_and_hr_people_of_reddit_tell/. As a matter of fact, even things worthy of the Daily WTF (http://thedailywtf.com/Default.aspx) almost never come up - at least as long as you are staying inside MSFT product development teams.
This does not mean that the system cannot be improved further - but how? Your ideas are welcome in the comments.