I think that's how it is, yes, and PG seems to have stated as much; in essence, you either die or don't die; if you don't die, the scale of your success depends on a lot of things that are beyond your control.
(Actual quote from PG: "The formula for the success of a startup includes a random multiplier of roughly zero to a thousand." — http://news.ycombinator.com/item?id=3050280 )
If one subscribes to this point of view then the purpose of YC is to help startups not die, and the purpose of the YC admission process is to
1. select all startups that have a chance of not dying if admitted (eg, refuse startups that don't stand a chance in hell of not dying)
2. if the sample from #1 is too large, reduce it at the low end first (startups that are not very likely to not die) but maybe also at the high end (startups that seem certain to not die no matter what)
Maybe reducing the selection from the high end is just plain stupid / counter productive, but if you don't do that, it's not very clear why one would be in this business in the first place (as opposed to other lucrative businesses).
These guys got 10k users in a month. But maybe they'd get 100k in 3 if they had YC. Even if you understand that either way it would be a success anyway. It's still reasonable to assume that it would be a worthwhile deal for them. If YC missed the opportunity to help them get even better, even faster. It's reasonable for both sides to treat that as a bug.