Fred Wilson had a great post today, Startup Hotbed Inferiority Complex, in which he discusses this topic succinctly:
But at the end of the night, the 'silicon valley' question came out. A participant in the audience wanted to know if it was crazy not to do his startup in Silicon Valley. This is what I call the startup hotbed insecurity complex. Deep down inside, every entrepreneur working outside of the bay area worries that they are not as competitive and will not be as successful because they are not in Silicon Valley....
...To which I responded that the idea that you cannot build an important tech company outside of Silicon Valley is 'a crock of shit'. Somehow that line was tweeted numerous times as 'silicon valley is a crock of shit' which I found humorous.avc.com, A VC, Jul 2009
Like anything, there are situations where it makes sense to move (starting a router company in Indianapolis) and there are often others where it does not (starting an e-commerce or internet services business in Chicago). However, too many people feel insecure if they aren't in the Valley. Just be certain why you have come to your conclusion...because the ecosystem can't support your idea or because you're just following the herd.