VC's won't invest in competitors - how would you give advice/counsel? It would cause all sorts of weird dynamics in the firm (e.g. partners competing) that are likely to be pretty detrimental.

In terms of why YC can get away with this, companies are so early that it's not clear what they will ultimately be doing in the end. Many of the internal competitors ended up that way by accident. Moreover, YC doesn't make singular large bets, while later stage investors do. As a result, they aren't nearly as diversified as YC is and so a duplicate represents a much greater overall risk (essentially guaranteeing a loss before you even start).