I don't know enough about Valve to know how it works, or even if the culture lives up to the press. So I'm not going to try to comment on that.
In general, though, stack-ranking is destructive even if no one gets fired. In companies that use it, it becomes impossible to transfer without a top-10% political success review (sorry, I mean "performance" review) history. But if you're doing that well politically, then you don't want to transfer because it entails rolling the dice again. The result is that people become pretty much immobile.
Closed allocation actually forces engineering ladders (with their attendant negatives) into existence because unsuccessful/persecuted people can't move and successful people won't move at all unless they can get a permanent credibility bump (promotion). But that leads to an arrangement where managers avoid promoting their best people because they know it might cause them to transfer.