They also have (had? it's been 2 years since I was there) an active rotation program between eng and PM roles, with the opportunity to transition permanently. A number of my friends did it; I'd seriously considered it, but my manager was willing to let me do PM-type roles without formally switching job titles.
I think if you graduated a class of TeMBAs right now, they would have jobs just because of the MBA side of the equation.
And, I think they would kick-ass in what ever job they take because of their tech skills. Even stooping as low as to say that their Excel skills would rock because they know how to masterfully program macros.
But WOW, yes, if someone like Google got behind a program like this, it would take off like nobodies business.
But I think we really need to get regular businesses (Davids, not Goliaths) behind this. And somehow, show them the benefits of a well rounded TeMBA graduate.
So I have to agree with DelaneyM that the crux of the issue is demand-side: where is the need for specific managerial jobs that require a baseline technical understanding (to estimate timelines, speak intelligently about the product with clients, etc.) as well as basic business skills (negotiation, project management, strong network for potential clients) that is worth the salary that an individual who just invested $200k and 2 years worth of time will be asking?
Flip it around: if Google opened up a new role for "Active engineers with MBAs", and presumably a few others followed suit, a top school or two (GSB/HBS/CBS/etc) would create the curriculum & recruiting plan to fill it. (Most likely Google could do this together with a school, they tend to have very close relationships.)