I agree with the idea in general. However, there are many cases where companies would (and should) hire people from outside their direct network. One is if the company is growing too fast (People in the direct network may be very busy & happy with their current jobs, making it harder to find enough of them). The other is if the company is looking to get diverse experiences and opinions. Imagine a social networking company formed by some employees of Facebook -- they would be better off by hiring someone from MySpace or Friendster who saw how difficult it was to compete with Facebook, and who tried to find niches to be able to co-exist with Facebook.

Similarly, for an employee, there are benefits of going out of their own network to get a job -- You get to work in a completely different setting (which may be a better learning experience for you), and you get to build a completely new network.