I disagree and having gone through such systems I would again. Here's why.
Right out of college I applied for and got a temporary job at Google in their Adwords program. Going in I new it was a trial by fire. I interview well, and frankly the bar wasn't very high to get in. However I washed out after a few weeks because the job sucked. I hated it, it was boring and repetitive, and so I did a poor job. Most of what I was doing has since been automated.
I thought I wanted the job going in. They thought I had the potential to be a good employee. We were both wrong, but it took just over a month to figure that out.
For my last two jobs I really wanted to work for the company but, on paper, I wasn't qualified. Instead I offered to do an unpaid internship. I worked my ass off for both, learned a lot, and was offered fulltime positions. If I hadn't created a work-to-hire situation for myself I would never be where I am today.
In both situations the key factor was that I knew, going in, that I could wash out at any time. It was a tryout.
As I'm sure you'd agree, if I had the expectation of a guaranteed position, only to have to taken away one month in that would have been devastating.
I would encourage more people to expand their hiring pools with these kinds of programs. I feel it is more realistic (and honest) that it will take at least a month to get to know a person and for them to get to know a job to see if there is a reasonable fit.
The parent post said that "all new team members" were subject to this. It's fine if you're willing to bring on candidates you aren't sure about on a temporary basis, but you're just going to send a lot of good candidates elsewhere if your blanket policy is "you will be terminated after a month by default". In particular, as other commenters have pointed out, you will be filtering out lots of good candidates who currently have stable jobs, but might be interested in your organization if not for the (justified or not) perceived risk of being fired for no reason.
It's not one organization, it's the commonality I've noticed from three of the ten that I've worked for that had fantastic teams. The other seven have had wildly different measures and procedures for employees, but each with worse results.
I think this kinda stuff always creates a two-tiered team, so it shouldn't be relied on as a way to hedge anything. You get the A-team/"our people" and the B-team/"their people" and right from the start everyone knows this. Then there's differences in pay, benefits, and expectations, etc. In other words, to use interns or contractors as a potential employee filtering method, to me, just sucks. I haven't seen that work well.
But, but, but! If you're looking to give people a chance to learn and expand, with no future obligations, internships are definitely the way to go. The key point being: an intern that doesn't turn into an employee is not a failure.
Take someone who doesn't even know what they can do and put them with a great team, part time, with real responsibilities, and with the idea that they're there to help out and learn and see if anything happens. Usually, it won't. If it does, great. If they become a future employee, excellent! My career was built from this, but it requires an employer that's willing to take a risk.
I want to work with a team where I'm motivated intrisically to do so; not because I know if I don't hit number X or Y I'm going to be terminated immediately. This may work for some people, but I couldn't handle having that over my head.
Lovely! The organization must have been pathologically dysfunctional in some grave way if this really was the case.