Another part of the argument goes along the lines of: The YC Founders program is a 3 month intense program where the objective is to build as much of something people want during those 3 months while avoiding distractions of the real world.
In my own experience, unless you have a lot of friends in the Boston/Cambridge area - it's a lot easier to whole up down in Central/Harvard Square in Cambridge - than it is anywhere in San Fran or Palo Alto. There's just too much to do in the bay area (startup related networking / yc folks to chill with...etc).
If Graham really feels that way about the East Coast investors (and especially if he says so publically), he might as well make California the permanent YC home.
Also, Boston is a niche: it is home to some bright tech people. YC is close to them, while the valley is away, so YC is the obvious choice for Boston students. That gives YC a competitive advantage at least in the area and makes it distinct. Moving to the valley would make YC more generic and less of a brand.
Willingness to move to the YC location is a precondition of being accepted into YC. I have to move from Mountain View CA to Cambridge MA for SFP... even though WFPs are held here, where I already live. But I'm not complaining at all; living in Boston for a while sounds great.
Which raises an interesting question as to how the YC partners handle the EC/WC split between the SFP and WFP. Do different partners play bigger roles in different programs? Does PG rack up the airmiles/spend 3mo of the year away from home?
Is cloning involved?
If Cambridge/Boston investors aren't helping folks take their ideas to the next level, why do the program on the east coast at all? Mountain View's got nice weather year-round.