Sense of overhang in the venture world

Friendster's valuation is proving that greater-fool theory is alive and kicking -

As the economy and the stock market pick up, an estimated 5,800 companies are hoping to get a slice of venture capital, which includes tens of billions of dollars that have been on ice since the dot-com bust. Forecasters say private firms this year will invest about $16 billion with these companies, slightly higher than last year, making it the first such increase since 2000.

What is different in the current investment cycle is the entry of successful entreprenuers who have joined the party and can play both ways for VCs -

"entrepreneurs who made millions in the 1990s boom are also investing their own funds in a new wave of startups, which invariably compete with early-stage investors looking to put money to work.
All of this raises the possibility that another bubble could form as new, old and public money collide in the marketplace to chase the few startup deals that are out there"

One thing is clear, people have a very short memory and very deep pockets (though the combination can make some people so rich that they can continue to power the obscene Silicon Valley real estate market). Bill Tai's point is worth keeping in mind -

"If there is one thing I and anyone else that's been through three cycles in that business has learned, it's that if things feel great and everyone's making money it's time to look over your shoulder and get out of the way"

Though I am not an economist but my gut instincts tell me something doesnt add up here. Parse following news items together -

Warren Buffet on stock market - "We've found it hard to find significantly undervalued stocks. The shortage of attractively-priced stocks in which we can put large sums doesn't bother us. Our capital is underutilised now, but that will happen periodically. It's a painful condition to be in but not as painful as doing something stupid"
Bill Tai on venture investment - "If there is one thing I and anyone else that's been through three cycles in that business has learned, it's that if things feel great and everyone's making money it's time to look over your shoulder and get out of the way"
Dan Gillmore on housing market - "This is unsustainable, and when the bubble bursts people are going to feel some serious pain. "