Agreed, it's a tough problem. I think Boston investors want to support Boston startups, but because of their structure/individual limitations (mentioned in the article) they can't necessarily "take one for the team" if it's investing 20% of their 'dry powder' for the year.
That said I do think startups can play the "fund us locally" card a bit.
I think those are very fair questions. On the one hand I agree a lot of startups can be derivative and may not pass the "how is this making the world better" question. But at the same time, that's a much higher bar than most companies are held to...
As far as Quora and Posterous as examples, I think their excellent UX do advance the world in that they help people share their thoughts and experiences better/more easily than with previous generations of those ideas.
Great ideas, many detailed that I have not seen laid out openly before. Being very selective about "who really wants in on the closed beta" is a great point.