Part of the guy's argument (and one I've heard from a few YC founders) is that with all the other odds that are stacked against you in a startup, do you really want to take a chance on location too?  If it gives you a few percentage points better chance of success, why not take it?  If your startup failed, how would you feel if it was only because you didn't move to Silicon Valley?  Tech markets are often winner-take-all - if you're a couple percentage points better than the other guy, you win.