I'm not completely certain we're not in some kind of bubble, but I can say that if we are, it pales in comparison to where we were in the '98-'01 era. EToys.com had a peak market cap of $10 billion. PlanetRX.com had a peak market cap of $10.8 billion, and I don't even remember that one.
Though they were and are still successful, Amazon and eBay had market caps of $28 billion and $17 billion respectively in early 1999 -- long before they had near-term prospects of showing a profit.
In comparison, $10 billion for Facebook today doesn't seem all that unreasonable.
One, how many of these so-called startups are actually receiving outside funding? It's one thing to hack together a dumb idea and put it online with ad banners all over the place, and another to actually receiving funding for said idea.
Funding hackers versus straight-up entrepreneurs is smart on YC's part for a number of reasons, but most of all because sites like YouTube blow up just as much for the technology behind the scenes as the implementation of the idea itself. Justin.TV is viable not just for its idea, but the clever things they've developed to make live video streaming cost-effective. And this likely plays into why YC looks more for smart people, as opposed to smart ideas.
I think people are right to distinguish between the apparent Web 2.0 social software fashion and a true financial bubble. Anyway, at least I finally know what bubble sort is good for. Getting them bubbles sorted ;-)
I remember at the end of 2000 (I was working for an i-bank at the time) everyone was talking about the "possibility of recession next year".