The IITs are certainly some of the most difficult-to-get-into institutions in the world, but I don't think think that indicates that the education is particularly high quality. In a country of 1 billion people only the very best students go on to an IIT - these are students who would probably be successful in their careers no matter where they went to school and it's questionable that education at an IIT has greater "value added" than at any other university ranked in, say, the top 100 in the world. I did graduate work with a Bangledeshi guy who'd gone to IIT Mumbai. He's one of the smartest and most hard-working people I've met, but I don't think IIT made him that way.
The article you referred to acknowledges that "IIT's don't offer a well-rounded education".
http://media.www.texasbusinessweekl...1/29/News/Iitharvardmitprinceton-354976.shtml
Moreover, there has been a lot of criticism that the IIT style of education discourages innovation. And the IITs do not match western universities in terms of research quality. Western universities still have a funding advantage - they can attract capital to pay for the best people and equipment. I would also speculate that there is a cultural advantage to doing research at a western university where the atmosphere is much less formal and young researchers are not expected to be so obedient.
Finally, the student housing is pretty terrible compared with what you'd find in the US.
http://idlivada.blogspot.com/2005/11/lets-all-go-to-iit.html
Someone interested in studying physics - who has US residency - is far better off at a good private college or state school than at an IIT.