I'm not a huge Silicon Valley booster (I like MA, thankyouverymuch), but I think the idea that Google would have been able to hire as much top notch talent, as quickly as they did, in PA is nonsense.
The only way that Google could have started in PA and been as successful as they have been is if they very quickly moved to Silicon Valley (or - maybe - MA).
But in anycase, Carnegie Mellon is apparently a top CS and business school drawing talent from all over the world including SV. If you really think Google's success was because of additional talent, then I still say Pittsburgh would have been a solution.
A brilliant algorithm isn't tantamount to business success. Plenty of great ideas languish, while lesser ones manage to gain traction.
As important as any idea or innovation is the ability to connect it with the people who can help spread that message.
I'd love it if this weren't true, but I'm afraid it is.
Still, if I were 22 and single, I'd start my start-up in the valley without a moments hesitation.
Oh yes, and as for Microsoft--the rules are different for them. (When your revenues dwarf the GDP of some small countries you get a little more latitude.)