I completely agree with pretty much everything you said here, and I’m glad you shared your experience.

I’ve managed my internship selection process in pretty much the same fashion, opting to ‘cast a wide net’ soliciting applications from universities, tech schools, job postings, and craigslist.
I got over 250 initial resumes, and despite being explicit about the requirement to be ‘on site’ in Chicago, I still had to weed out 30 people that were in other countries (and weren’t planning on moving).

While the programming assignment we gave was very straight forward (create a web app with a login page, display ‘Welcome !’ on successful login, error msg on failure, log the attempts), only 20 people submitted a completed app.

Here’s what I learned:
1. Students from the best universities had better formatted resumes, but were no more likely to complete the assignment, or to do better in the technical aspects of the interview process, (though they seemed more polished for the face to face and whiteboarding aspects).
2. Students from smaller schools (including tech schools) seemed to have more varied tech experience, and a willingness to dive in and figure new things out, (though we had a smaller population, so its not wise to extrapolate too much)
3. Students pursuing or having completed a Master’s degree did not score higher in our quantitative score. Though they had more general experience, they did not score higher in the technical assignment or the technical interview.

I also learned that there were several passionate students whose skills and approach led them to be much more productive than several of the senior, high priced developers on staff, and that in today’s landscape you can no longer rely on just a resume review and a single face to face interview. (I now do a more structured process for all candidates)