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This sounds like an article from 1998. Are there still any incubators that work this way? Certainly none of YC-like seed firms that sometimes get called "incubators" do.
I think http://sproutbox.com/ is sort of doing this with a mix of a YC-like seed firm. When talking to anyone about YC and programs like it, I really try my hardest to make sure people realize it's not an incubator.
http://www.plugandplaytechcenter.com/ is one incubator that is alive and kicking. They don't pass ideas to residents though, they're a real estate company and based on what they charge for a cubicle I think they're doing just fine.
This seems to be arguing that they're at the wrong point on a continuum. But there can be more than one "right" part of a continuum as well -- the model of a small, focused team works, but plenty of big companies use huge numbers of less-focused teams, and those also work.

The incubator model could be another local maximum.