The reason for the original idea was because if YC invested in a later round, or chose not to, that was a huge signal to the other investors. Most companies at the time could not raise later rounds if they were not promising.

But, since YC was not providing any additional signal by investing in everyone, the original signal carried so much weight that even obviously failing companies so keep raising rounds based upon the original YC signal.

So the "hack" about letting the market guide YC's later rounds was foiled by the same reason they came up with it in the first place.

I personally enjoy the irony of it.