Maybe I'm wrong about this, but I would imagine that the the average quality of startups that applied to YC and didn't get accepted is higher than the average quality of startups that didn't apply to YC, but do apply to a YC rejects group now there is a possibility of funding.
Obviously, depending on how well the YC Reject guys filter the applicants, it may not matter who applies, if they select the best, and are proven to be good at the selection process.
Why would someone apply for a funding source that only offers to give a few thousand bucks for 6% but not apply for a funding source that offers to give a few thousand bucks, the best advisors for early stage software startups in the world, the best odds of being funded in the angel and series A stages and with remarkably good terms, the best odds of being covered in TechCrunch (100%, I believe, if you demo on demo day) and several other major tech media, and participation in the next "mafia" in Silicon Valley?
Obviously of the hundreds or thousands of companies that don't get accepted to YC, all of them can't be accepted to YC Reject either. No matter how much money they've lined up (the word "angel" was used, I believe to describe the funding source, so it is in the thousands or single digit millions), there's simply not enough money for it to be a money spigot that anyone can turn on, at will.
Basically, what I'm saying is, if the odds are slim in either case, the cost of applying to each is simply filling out an application, and the payout for YC is so much higher than for YC Reject, why would someone lie about applying to YC rather than actually applying (even if they don't have high expectations of getting in)? I just can't figure out a situation where that would ever make sense.
Firstly, YC Reject is, by its very nature, aiming lower than YC. Secondly, no offense to people behind YC Reject, but I would expect YC to be significantly better at spotting the best applicants.
Now, I don't have a startup looking for funding, and if I did I wouldn't expect to get into either. But I'd expect to have a much better chance at getting into YCR than YC. As such, were I looking for a small amount of funding, I might look at YC and think "why bother, not a chance" and then see YCR and think "let's pretend I applied to YC, then I actually have a chance at this one!"
And sure, the cost of applying to each is just filling out an application, and so in future I (the hypothetical me that is in a startup) might apply to YC, knowing that the worst case scenario is I become eligible for YCR. But right now, even the time spent filling out an application is a waste of time if you don't think you can get accepted - but perhaps less likely to be a waste of time applying for YCR.
As to why people would want to lie to apply to YCR - a part of the reason for YCR, and for possible funding, is the PG quotes saying "we are always going to miss some of the best..." etc, and the idea that teams applying to YC, given they thought they might be good enough, they are more likely to be good than teams who thought they definitely wouldn't be good enough for YC. Without the link to YC, there would never be a funding offering based on a blog post saying "let's get a group of startups together to form a network of contacts etc.", after all.
Obviously, depending on how well the YC Reject guys filter the applicants, it may not matter who applies, if they select the best, and are proven to be good at the selection process.