Yes, sadly, it's true. I temped for the past two summers as a paralegal and I met people who has graduated in 2001 and 2002 and were working as either paralegals or contract (or temp) attorneys. I never asked why, because I thought that would be rude, but one of the other temps once asked and I was in the room...The two contract attorneys, who has gone to Brooklyn and SUNY Buffalo, were kind of reluctant to answer, though. I think they kind of mumbled something about grades. However, I don't think it's such a reflection on that school...I met a young associate at a top 10 firm who graduate from Brooklyn in 2002.
Last fall, I also heard of a paralegal at my firm who had just gotten her J.D. from a school I had never hear of, but I don't know what her deal was. I worry a lot about ending up without a job after law school, but I keep hearing that if you end up at the top 1/3 of your class at a Tier 1 (top 50) school, it doesn't matter. And then if you end up in the top 5% of your class in a Second or Third Tier school, your chances are excellent. Although that sounds pretty difficult. A good friend of mine went to a top 10 school, and she said that recruiters really wine and dine you during your second year, but I guess you would expect that from schools with those reputations.
I'm eager to hear other responses, though!