Yes, I am in the startup ecosystem in Bangalore and I can definitely say that there are pockets of real talent here. In fact I feel lucky to be in a place where I am enjoying work, learning a ton and surrounded by some of the most talented people I have ever seen.
Care to name those 'pockets' please?
This link gives a better answer http://www.quora.com/What-are-the-hottest-startups-in-India
Amongst the ones I personally know Flipkart, Myntra and Cleartrip have some really good people. And then there are freelancers who work remotely for the bay area startups.
Edit : If you are in Bangalore, then do attend the tech conferences here to get a better idea of the ecosystem.
What's changed in five years? For one, Bangalore has a real startup ecosystem now, with funded startups that pay market-level salaries and offer stock. This was rare in 2006.