first off, i would NEVER give such a coaching mandate in my life.
however, there are some possible things defensible in his position:
1) limited resources: this is the reason most colleges, as well as other high school sports, don't have an all-comers mentality. i'm not sure, other than tradition and the occasional anecdotes of "losers who later were fast," why our hallowed sport got its "everyone's entitled" attitude. i'm not saying that attitude is wrong--in fact, it's exactly the reason i became involved with the sport as an athlete (that, and i was no good at anything else), and it's exactly the reason why i still love coaching the sport--but it is, for the most part, strangely unique to our sport, at least in high school. not many would criticize a college coach for holding this standard, nor do many criticize a high school basketball coach for making cuts based on talent. why do we criticize a h.s. cross country coach then?
2) liability: every year i'm amazed i get through it without a lawsuit for negligence. is there any other sport where we give our athletes so much unmonitored workout time? would any other sport get away with what we do? what would happen to the football coach who says "practice these tackling drills on each other while i go work with the jv team on another field." if one of the athletes got hurt the coach would be accused of criminal negligence; yet, when my athletes are out on a 6 miler navigating down streets with no sidewalks, taking liberties with traffic signals, is there any way i can watch all of them? no. i do my best to monitor them, but i can't be everywhere, and i'd hate to run every mile around the track where i can see them (which is essentially what almost all other sports do relative to their "field"). am i being criminally negligent? i'd hate to find out in a court of law...
3) failure as the best instructor: while malmo has an excellent example of why you don't want to cut athletes ("the next ceo anecdote"), and while i may like that more talented athletes can be influenced by less talented but hard-working athletes (given the choice, i'd rather coach a less talented hard-working team than a more talented lazy team), you could argue that by keeping some of these athletes in a sport where they have little chance for athletic success could be keeping them from pursuing something they COULD be successful at. think of the guys you know who could not give up "the dream" (any dream), or hung on to the pursuit (any pursuit) longer than was healthy. i know more of them than ceos...
again, i'm not trying to justify this coach's position because i certainly do NOT agree with him, but most are going to make judgments based on common assumptions and presumptions that have little rationale behind them.