Is it possible? Yes. The firm I worked for has taken on 2 summer associates who used to work for us as paralegals, file clerks, or administrative/HR positions.
Is it common? No. The ones we hired went to well respected schools and performed near the top of their class. They had other aspects of their legal resume other than employment with "Firm Name Here."
I'm sure it helped get their foot in the door, but they in no way lowered standards in hiring them. I've known 4 or 5 people that used to work for us, went to law school and weren't even given an initial interview either for summer positions or for a first year associate after graduation, despite the fact that they worked for/with various partners for 3, 4, 5, 8 years.
What the overall rule seems to be is that if your grades and resume would be attractive to the firm as a perfect stranger, then yes, your experience with them may help out a little bit. If they'd never consider even interviewing someone with your grades and performance, then you could work there for 20 years and not get anywhere with them.