Or to put it another way. Has anybody seen any significant increase in business after switching their site to an expensive "killer" domain?
Your domain name / brand name is only a portion of the pie, and considering the reputation of Mahalo, starting with nothing but a domain name and a potentially poor co-founder match will not bring quality technical people to Santa Monica.
Update: missed a really obvious one--Twitter. It launched as twttr.com and was nearly impossible to explain to people. I don't think it would have gone mainstream without the URL that includes vowels.
Dropbox went on a tear after their domain purchase, but I suppose it's possible they would have anyway (though I know from personal experience it was tricky to tell people about Dropbox and then try and remember the domain).
http://www.google.com/trends?q=dropbox
(Dropbox.com was acquired in October 2009, right where growth turns from linear to exponential.)
(Not arguing with you, just pointing it out).
But both Dropbox and Facebook were building brands around those particular words, yet had domains that were not the branding words (getdropbox.com, thefacebook.com). Facebook also started out initially as a college-only thing, then opened up to the world, so it's hard to say their growth was linked only to domain name changes.
In either case though, (the)facebook.com could have just as easily been "allmypals.com" or something similar where the branding matched the domain name in a more direct fashion.
Google, Twitter, 37Signals and yes even Ycombinator are all things that meant nothing until their founders made them mean something. Once that happened their uniqueness became an asset
In fairness 37 Signals also means something just not a specific concrete thing that someone would search for
Regardless in hindsight it's a pretty good name by all metrics.
It's short, pronounceable, very typeable (on QWERTY), memorable, works as a verb, looks good (double-o), starts with "go", and even has a double-meaning in the context of their business (googol and goggles).
Not to mention brand credibility. Others have mentioned Mint.com (which they paid a pretty penny for). Dropbox got dropbox.com pretty recently (switching from "getdropbox.com").
And, word of mouth marketing.
Plenty of examples of companies succeeding with weak domain names, but yeah-- I think "killer" domain names matter a LOT.
As far as spending $125k on domain names, he could have created at least 2 - 3 killer apps for that price, especially with his marketing influence.