His startup just died. I dunno if YC investment/credibility/free PR/advice would have kept it from dying, but I'd wager it'd help his chances by a meaningful amount.
People should optimize less for their magnitude of personal success (should their startup succeed) and more for the chances of their company's success.
I agree with what you're saying, but I'd be curious to know what the response to the program would be if terms started to move towards the funders and away from the founders. YC gets a lot of attention from their current terms, which means they have more choice and can be picky about who they fund. If they start asking for more equity or offering less money, I'm assuming they'll lose some of that choice. How much they'd lose is anyone's guess. Startups as a collective "product" certainly don't fit nicely on a supply/demand chart. It will be interesting as the years pass to see if the terms are adjusted and how the quality and/or quantity of funded companies moves with those adjustments.
One thing complicating your line of argument is that investment terms (as a price) are are significantly harder to value than cash. So it can make sense for people with more experience could to correct the under- or overestimation of inexperienced entrepreneurs.
A price is set by a market.
Asserting that "YC terms are poor" is like saying that YC's price is too expensive.
If the price were too expensive, YC wouldn't have enough applicants.
YC does, indeed, have applicants beating down the doors.
So I would argue that their terms are actually a bit rich.