Smart young successful people actually do live there, more so than it's comparison cities... It also has some of the most educated folks in that bunch- http://www.pitt.edu/~cbriem/SelectedTables2.htm You'll see it's in very good company among the top educated cities. Personally, a lot of my friends stayed in Pittsburgh and/or moved back after a few years. I personally was itching to leave many years ago, have lived in many places along the way and now miss the place dearly/will at some point move back.
There are a number of startups in Pittsburgh now, but not as many as there were during the .com bubble... there are many more than any other cities of its size, primarily because there is great talent coming out of CMU and Pitt. Your argument suggests that there is no reason for anyone to not locate to SV (which is totally fine, but I think many would disagree)
Here are some of the recent startups: http://www.quora.com/What-are-the-hot-software-or-recent-sta...
and some others: http://www.quora.com/What-are-some-good-startups-out-of-Pitt...
Re: food, you must be joking... Murray Ave right by CMU has more fantastic ethnic restaurants than anywhere I can think of (http://www.urbanspoon.com/n/23/2226/Pittsburgh/Squirrel-Hill...), and Nine on Nine, Eleven, Paris 66, Salt of the Earth, and Bona Terra would be worthy of Michelin stars in another city, yet they are reasonably priced in Pittsburgh.
Re: weather you're spot-on... there are less sunny days in Pittsburgh than nearly anywhere... but it seems to work out OK for Seattle.
If this fund is indeed run by a bunch of bureaucrats it might end up being crap, as you suggest. Project Olympus at CMU has done some good stuff though, so I have hope. http://www.olympus.cs.cmu.edu/probes/