I personally work with a geographically distributed team and as long as we meet face to face on occasion, we're highly effective and we can hire when ever we find good talent no matter where they live.
I know companies like GitHub, LivingSocial, and 37 Signals all embrace this remote team model and utilize it well to find the talent they need without taking desperate measures.
That begs the question, why aren't most of these startups doing the same thing? I understand big companies are often too paralyzed in bureaucracy to hire remote workers, but shouldn't startups be a little more flexible in this regard?