How do I deal with difficult but talented employees?

Having been a difficult employee myself (don't know about the talented part), I've wondered if the way my old boss dealt with this problem was the right one. After some initial conflicts he decided to ignore my antics as long as my output was high. But I guess if he'd had the opportunity to replace me he would have fired my ass in a heartbeat.

Which brings me to my point: Most of the advice is sound ("if they're not playing by the rules, let them go", "the team is more important than an individual contributor") and I'm sure they work in a corporate setting. But do they work for startups? If you have a bunch of average people, you'll end up with a mediocre product. You need talented people who can do more than what their job description asks of them. And unfortunately talented people are also notoriously difficult to manage, because they have better alternatives than others, because they don't think rules apply to everyone the same, because the lack social skills or because they're just jackasses. Stay away from the jackasses, but for the rest of the talented misfits there must be a way to manage them and make it work.

I am a little hesitant to accept the posters description of the person.

"Refusing to cover for other teams" sounds a bit like "we expect to drop him in multiple areas of responsibility and work as well in both" as well as "I am the boss do what I say" instead of "I am the guy with the responsibility to get X Y and Z done help me get there"

He sounds a bit like expecting to be a military officer with Yes sirs and the whole bit. Sure, the guy he's talking about also seems to go off on tangents, but the poster seems like someone who has a outdated management model and just wants to fire this guy rather than learning to lead people. But our industry has lots of people with interesting social skills, but can still function extremely well with leadership instead of C&C type orders from on high type relationships.

I think 1:1s, giving the difficult guy actual responsibility, and providing more non-technical team building time for that guy and the guys on the other team will make him a useful contributor, if he isn't already. It really sounds like we're getting half the story here or the poster is just trying to get permission for firing the dude from the technical community.