Because it is good for workers, and therefore workers who value themselves (or more specifically, understand their value to businesses) will want to live someplace where their rights are more important than their companies.
For example: non-compete clauses are unenforceable in California. This makes it "unfriendly" to businesses, but much more appealing to highly skilled workers who don't want to be boxed out of their industry for two years just because they dislike their job and want to quit.
The bay area has 1) a large, talented workforce, 2) great universities, 3) lots of venture capital, as well as people who have "already done it" to give advice. Plus it's a nice place to live if you don't mind the traffic. Granted, opening an LLC costs X compared to a much cheaper Y in Nevada, but that's ultimately kind of small potatoes compared to all the things in California's favor.
That said, I'm more interested in bootstrapping something: what people like patio11, Rob Walling and company have achieved doesn't look like science fiction, and they're doing it in places that are not Silicon Valley.
