That's a bunk argument.  LOTS of guys with high round talent aren't taken until the later rounds because of signability concerns or other commitments.  I can think of about a dozen guys off the top who we drafted on a flier in later rounds who didn't sign and later became good major leaguers or high draft picks (David Bush, Mike Pelfrey, and Jacoby Ellsbury are a few quick examples), but they were drafted late because they were considered unsignable, not because they weren't considered to have talent.  Occasionally one of those unsignable guys signs (see DJ Jones this year, for example).  Also, occasionally the scouts vastly underrate someone and they just turn out to be much better than they thought (i.e. Albert Pujols) or someone develops more than people would expect in the minors (i.e. James Shields).  Still, every statistical study I've seen gives draft position an extremely high correlation with making it to the majors.  The correlation gets a little lower when you look at who will become an average major leaguer or who will become a star.

A lot of picks flame out at every level.  More high picks flame out simply because everyone expects every high pick to do well.  They don't.  However, even when the high picks flame out, they still tend to have more success than most low-round picks.