https://chrome.google.com/webstore/detail/hn2go/logdfcelflpg... (shameless plug)
... I definitely wondered about this. All of a sudden, it turns HN into a popularity contest where the elite get all the attention and everyone else is completely ignored.
While the effect isn't overwhelming, making the content of a limited pool of 'thought leaders' more prevalent is certainly the bias that a karma system is intended to create. Of course HN presupposes that high karma correlates to high quality content and a high quality user, which is probably why as I understand it, karma gets used as a weight for things like the effect of flagging or downvoting. But if they didn't want it to be a popularity contest, I would assume they wouldn't make user karma public. You don't give people a metric without expecting it to be gamed.
I've never heard that one, and it's not the purpose. PG added it years ago when the YC alumni community had gotten too big for everyone to know each other.