Well, certainly some of the top schools are known to have grade inflation (Berkeley and UCLA are clear exceptions to this and are known to be highly rigorous in grading and very competitive). But, I don't begrudge the folks at Stanford or Harvard who benefit from grade inflation (not sure if these places have it, but I've heard rumors...). The fact is that these schools are extremely selective and as Tarmac pointed out are already stocked with the highest performing students. Sure, there might be some crossover (students admitted to both schools but selecting the the less prestigious) with a school like Berkeley because of cost, or perhaps a school like Williams because of intimacy, but the list is limited. There's zero crossover between the the student body at Stanford and the students at 95% of the other schools out there - it's a place filled with A+ students.
Certainly, there are lots of reasons why someone might be going to a no-name college, and some people show their stuff only have they get to college. I'll take California for example (I know it well). Students at Berkeley and UCLA get a lot of respect when it comes to graduate school admissions. One could make a plausible argument that quite a few students selected these schools because of cost and/or location; because other than Stanford a plane ride pretty far East would be required for substantial quality. The other UC schools are very good as well, with San Diego, Irvine, Davis and others regularly appearing pretty high in national rankings. Still, anyone that understands the dynamics within California knows that, for the most part students at these schools were passed up by Berkeley and UCLA. What about a Cal State school (LA, San Diego, Northridge, Hayward, and lots of others)? Well, students a these schools were definitely not the cream of the, they didn't survive the rigorous admissions process (there's not really a cost or location advantage). Certainly, some didn't find the beans to do well in school until they reached college, so people with 4.0 GPAs and such will get consideration; but a 3.0 from one of these schools? Not a chance.
Sure, work experience is a big part of the MBA application (as are many other things), but spend any time looking at a resume book from a top business school and you'll find that a large portion of students come from the expected schools, and the few that come from other schools much demonstrate their academic nuts with top grades signaled by lots of Greek and Latin words (Magna, Summa, Phi, Beta, Kappa). It's not really an argument as to whether this is right or wrong, the proof shows up in the profiles of the admitted class pudding.