Interesting discussion: What happens to Silicon Valley as the dollar exchange rate falls even further. According to Nat Torkington, there is enough money in SV already, so foreign capital influx will not change much. And given the cluster characteristics, outflow of talent will be slow. But the exit procedure – the IPO – might move from NYSE or NASDAQ to stock exchanges abroad.
I don’t know about the outflow – much of the innovation in SV has been due to a diaspora of talent from Asia and to a certain extent Europe. It is only natural that some of those people will want to move back home and bring a little bit of the left coast with them. The question is rather – what is the critical size of an innovation cluster like SV, and how important is the VC part of it? If the answer to both is “large”, the SV will maintain its dominance for a very long time.
Applied Abstractions
Espen Andersen's take on technology, strategy, and many other things
Applied Abstractions 
My guess is that too few of those non-SV-native people will return as the innovation&entrepreneurship combo is very addictive. You fail and start over, you succeeded, you will most likely get back in the saddle and try it again. Besides, the SV seems to provide the world’s best premises for an innovative environment.
Dragos, I agree that SV is a great environment (the best), but the pull from the old country is pretty powerful once you are over your young and wild days. When I was in India in March, I spoke to an HR manager in one of the ITS companies who said that it was hard to find people with 5 years experience – they all wanted to go to the States – but not so hard to find good people with 20 years experience, who had returned with their families (or to start a family, somewhat belatedly). Some of those people are brining back angel funding, and getting a bigger bang for their buck in India than in SV. Therein lies the small start of new innovation clusters.