I was rejected by YC for the 2006 WFP. I created an app with no funding that didn't make any money, but gave me credibility. As a result, my current (new) project is funded. If it had kept looking for funding instead of just building something, I probably would have given up long ago.
The true ethos of a hacker lies in building stuff. If you get rejected, just keep building stuff!
Rich, that's a great point, and one that I hope doesn't get lost in this discussion.
YC, like other angels/VC firms, has a profile they prefer, even if they may not state it explicitly: i.e. teams of at least two people, under 35, writing web-based software, etc.
So just because you don't fit that profile (or you do, but YC rejected you), doesn't mean you will fail.
The true ethos of a hacker lies in building stuff. If you get rejected, just keep building stuff!