I think the music parallel was right on, actually. You need users to tell you what they think of your product at least as much as VCs or execs. If users don't like your product, trying to pitch it to VCs is a waste of time.
I took it that he meant that the artist wasn't willing to work at his music enough to gain traction and wanted a quick track to success by signing to a big record label. With that being said, I think that the majority of YC submissions aren't looking towards this as an only alternative but one of many routes that could be taken.