I think Thiel was probably creating a program with a knowledge of the PR the initiative would generate without much thought to long-term outcomes. Obv. he is a smart guy with plugins to higher-ed, and clearly someone who believes in the positive possibilities of innovation. In that sense, he is someone I would like to collaborate with.
That said, he may have shot himself in a foot here in picking people who were good from a short-term PR perspective yet will blow up and look like idiots in the long run. I heard of Dale Stephens before, but didn't take him seriously until Thiel sponsored him. Then I subscribed to his Facebook and blog email feed. What a joke. The whole thing is tailored for a bunch of angsty underachievers and provides zero positive value.
In this sense, I think Thiel has also done himself a disservice by pandering too much ultra-libertarian tech crowd which wants to see everything privatized -- the ultimate goal is a "Halliburtinization" of the US, where all governmental and public functions are provided at speculatively higher efficiency by the private sector.
Obviously, as the Halliburton saga in Iraq illustrates, this is very rarely the actual outcome. Enrons and their ilk create private monopolies on markets and spike the price to their own benefit.
This sort of short-sighted approach to higher ed is just a symptom of a similarly flawed way of thinking about the world that emphasizes profit (a short-term metric that is rarely the most important), instead of the other values which can be fostered within the context of higher ed. In this sense, I think the East coast Ivy League establishment often does a better job than Stanford in emphasizing some of these other elements -- for example, the library at Stanford positively sucks and it is very difficult to find the books necessary for anyone who reads widely (Cal is a bit better, but in general Californians seem not to read very much).
In any case, I think Thiel needs to step up his game a bit. Initiatives are needed to make better, more well-rounded people, rather than more little entrepreneurs who want a quick buck at age 20. In his book on Stanford educational system, he appropriately references Caliban and the need to "chain the beast" so-to-speak, but it seems that he hasn't taken his own lessons to heart.