This sounds like a crazy plan for a startup, I realize, but this is the right sort of crazy. In fact, the way the Hackruiters think about Hacker School is a lot like the way we initially thought about YC: if it doesn't make money, it will at least have been a benevolent thing to do.
We are all agreed that your theory is crazy. The question which divides us
is whether it is crazy enough to have a chance of being correct.
—Niels Bohr
I think its an awesome idea, really. I had an almost identical idea after wading through interviewing potential candidates where I work. 90% of people recruiters send to you are barely screened, unprepared and underqualified. It seemed to me that if a recruiter would just sit people down for a few weeks and teach some relavent job skills, they'd have a much higher success rate.
I don't think you'll have a big problem meeting that goal. I just hope you guys can move to other markets (I assume you're only in SF right now?). There's a severe shortage of Rails devs in other places, because the best ones tend to migrate.