This sounds a lot like a "lattice" organisation. It was invented by Bill Gore, founder of W.L. Gore & Associates (famous for their Gore-Tex fabric). At Gore, apparently everyone is an associate with no specific job title. There are no chains of command or hierarchy. People choose to work on projects based on their own judgement.

As Gore grew, it was apparent that this structure did not work with more than a couple of hundred people. So now, teams are limited to about 200 people (approximately Dunbar's number). I imagine Valve will run into this social limit as well once they grow well beyond their current 260 employees.

Given that Gore still exists, has 9000 employees and is profitable after 60 years is testament that such a structure can work for small as well as larger organisations over a longer period of time.

I first learned about this organisational structure in Malcolm Gladwell's book The Tipping Point. There are multiple descriptions online, here's one that seems interesting: http://ecgi.ssrn.com/delivery.php?ID=61902009302412510712411...