Really? In my current position I have hired 8 contractors over the last 3 years, and 5 employees.
Initially we tried to always hire the best developers we could get, who tended to be contractors. Several of these guys were actual core members on major projects like Rails and Prototype. The work they did was amazing, but we could never get a long term commitment and thus they never came to really understand the codebase, and it was impossible to get emergency bug fixes from them in a timely manner. Of the 8, we still use 1 because he is able to respond quickly, and because the scope of what we use him for is relatively small and well-defined.
Of the 5 fulltimers we've hired, only one didn't work out. The others are not quite as good as some of the big names, but definitely above average and able to add real value not just to the pieces of the code they work on, but the overall technical and product strategy.
