I don't think that the nature of this business turns us into jerks, but I do think that the experience of looking at hundreds of deals in a year, and experiencing failure at the box office does turn a lot of VC's into cynics. You really have to wake up everyday and think about how technology can benefit people and companies, and that's is plain out fucking hard on most days of the week when you are knee deep in the shit.
You want to talk about arrogance, how about the scores of entrepreneurs and their evil close cousins - the "successful executives" - who fail to even consider the possibility that their best formed plans may have a few flaws in them, or the notion that their new widget just isn't going to drive the big deals that they dream about. Better yet is the entrepreneur who thinks that their pre-product, pre-revenue company is worth $10-15 million pre just because. Serial entrepreneurs are perhaps even worse at times becuase they really do think they are the dog wagging the tail (us)... even though the odds of finding serially successful entrepreneurs are only slightly better than O.J. didn't do it.
I do think there are a lot of assholes in this business, but the Asshole Quotient is probably no more or less than any other business where the stakes are pretty high and you are investing OPM (Other People's Money). I will submit that the Asshole Quotient is coorelated to where your firm is on the food chain... Kleiner and Benchmark are not humble firms.
Finally, I fully disagree with Spolsky's recipe for fixing venture capital. Just because you built a nice little software company and have read a few blog posts on how VC's work doesn't mean you know a lick about the ins-and-outs of the daily life of a VC. It would be like me coming up with a really slick powerpoint presentation about his business and telling him that's how it should be. Venture capital is in fact a cottage industry that isn't very scalable, but it's a niche in the much larger private equity world and has a place. Spolsky dumbs down the venture world to 'they just want to find the next google,' and he fundamentally misunderstands the nature of this business, or the reach and depth of successes that aren't multi-billion $$ public companies.
Investment bankers get a bad rap thanks to classic villains like Gorden Gecko in Wall Street, Ivan Boesky, and Michael Milken. VCs don't get Hollywood movies and we can't think of a VC who has been perp-walked. Still we detect a Zeitgeist where seasoned entrepreneurs are vocal about being repulsed by VCs, and are trying to create business models that don't require investing.
Blogs haven given voice to these sentiments. Joel Spolsky who publishes the very popular Joel on Software blog made his case against the way VCs operate in the a widely circulated post Fixing Venture Capital. In short, Spolsky's beef is that VCs are 100% focused on the next Google or Netscape so they don't make sound choices about sensibly growing businesses.