Sounds a lot like the UCSC wilderness orientation program. I participated in that back in 2001, as an incoming student, and later went through a good chunk of the guide training program before scheduling conflicts forced me to drop out. There may well have been changes since then, but I’ll see what I can remember about it.
First, the decision-making process basically relies on students having relatively little wilderness experience, which leads to a certain fragility. Guides don’t have formal authority, but they do have training, information, and experience that incoming students are expected to lack, which naturally puts them in a de facto leadership role. My group happened to include a more experienced student (an Argentinian backpacker and climber in his mid-twenties among a dozen homebody teenagers), which led to substantial friction: his ideas didn’t always cohere with the group leaders’, but inertia and implied authority usually won. Eventually he left the group and hiked out by himself.
It was very ritual-heavy, and I don’t think they had all the bugs worked out. Some of the ritual worked; some came off as cheap and fuzzy New Age stuff, or clunky in other ways. A lot might have worked or not depending on luck and mindset; I’d put the 24-hour vigil in this category, especially since we were encouraged to use the time to make gifts for other hikers.
Still, it’s pretty hard to screw up intense small-group bonding under wilderness conditions. Plenty of groups have exploited this, from the Boy Scouts to Burning Man, and WO was far from the worst attempt at it that I’ve seen. The group size is close to optimal for the time you’re spending out: large enough that you can avoid anyone that really rubs you the wrong way, small enough that you can get to know everyone. The group leaders don’t feel like a separate clique, probably because of something similar to the selection criteria you mentioned. The level of challenge is about right for inexperienced hikers, although I’d already been on several backpacking trips.
Overall I think it was a valuable experience and basically a good idea, but one hampered by mindset problems and a lack of structure and focus. A few relatively minor changes could have greatly improved it as both an orientation program and a group-building exercise.