Stack Overflow got investors into an auction for our Series A round (including Fred Wilson, the author of this post, who ultimately invested). So did Quora (obviously, based on their valuation). So did any number of other hot startups. When the deal is hot they'll all crap themselves to get into it. When they think they're going to make 10x or 100x they're not going to worry about whether the premoney is $10m or $15m because they're dreaming about selling at $500m.
Paul has a unique view of raising capital, one that comes from the perspective of dozens of undifferentiated two-person startups with 3000 lines of code written over ten weeks and no barriers to entry or defensible positions because they have 3000 lines of code written over ten weeks. That's a position where maybe you don't have so much leverage with investors. It's only one aspect of the market.
What is true is that top notch VCs don't like to act like they're in an auction, because it makes them feel unloved, as if we only cared about them for their money. This is partially true... there are a lot of factors that are WAY more important in raising a series A than valuation, but that's a part of the VCs overall bid. And proper decorum dictates that the auction be done with finesse, because most VC bidders will drop out if they think they are just being used to get a higher price. But the idea that there's collusion in investment is just not borne out by the evidence: post money valuations vary wildly.