I'm not going to claim that Microsoft isn't too insular (it is) and I live and work in Seattle on purpose, so I'm a little biased about this, but I don't think it's just about the location. Besides Amazon being a huge presence, more and more established tech companies are opening development offices here (Google, Facebook, Zynga) just to take advantage of the talent that's here. Not to mention the fairly healthy startup culture that feeds from and back into the beast in Redmond.
Leadership, culture, and politics are all much bigger problems than geography.
Leadership, culture, and politics are all much bigger problems than geography.