Yeah, that was the impression I got from some of the earlier PG essay's (replete with "top coders", "top CS departments", "top schools"). I remember thinking while reading that, "how does that prove the person can build a product, or do anything other than what they have been told to do?"
Later on I think he toned that down a bit.
The schools I attended aren't worth mentioning, and I couldn't remember what school my co-founder attended when I filled out the application (and it was within a couple of hours of the deadline, so I didn't wait to find out--it turns out to be among the best in Australia, but YC didn't know that when we were accepted, or even now, for that matter). So, while I get the feeling graduating from a good school is one currency with which you can show you're capable of doing something hard and completing it, I believe the YC folks are very amenable to accepting many other forms of payment.
There are certainly plenty of Stanford and MIT grads that make it in...but it's definitely not a requirement. (Seriously, I attended community colleges, and for crazy crap like audio recording and Jazz performance. You can't get much less impressive than my post-high school educational record.)