I think admitting everyone IS possible. It's important to realize that these hackathons spend thousands to fly a lot of out of state hackers in (travel reimbursements). These hackathons will also send buses to nearby colleges, and even colleges out of state (e.g. anything within an 8 hour drive). If they didn't do those things (especially airfare reimbursements - kind of excessive if you ask me, or limiting buses to 3 hour drives) as much as they do now, they'd be able to narrow the pool a lot.
I've been a sponsor at multiple hackathons and have seen how the staff and facilities are already stretched to the limit.
It's unclear from the article how or if they prioritized local people, but from this:
"In the end, we accepted 708 students ... Combining these numbers with students from the University of Pennsylvania, we anticipate 1200 hackers will be joining us this fall."
it sounds as if there was a major effort to get local kids involved.
(and it's unspecified of the 70% rejection rate, how many of those were UPenn students, how many were in the greater Philadelphia area, how many within easy driving distance (say, DC to NYC), and how many were further away)
