I was an intern in a startup that tried exactly this. It was a lot of fun. We got a ton of VC cash to burn and so why not do it in a nice environment? In the end, the company failed. We all got too much into a "holiday" mood. The webdesigner won a surf contest. The CEO started an affair with not one, but two of the female employes. We all got fat from eating delicious food from the 5-Star hotel and high class Restaurants near by.
Moral of the story? Stay frugal even when you dont have to. It might be better for the company.