I think trying to promote your YC startup amongst your fellow batch members is different to asking the tech community as a whole to vote for your product. Perhaps "founders told each other to upvote their products" wasn't the best way of phrasing it, but I imagine it was more like how you'd ask those closest to you to give you a bit of support.
With regards to the conflict of interest, I don't see this being too much of an issue. Whilst PH itself is part of a YC batch, the majority of the PH community won't be, and it's them who collectively vote.
The issue is momentum: with HN/Reddit's time-based ranking algorithms, the first few upvotes are extremely critical. On Hacker News for example, getting ~5 upvotes in the first hour for a otherwise-unexciting product will usually have it touch the front page, and that could be hit with just little collusion.
Getting the rest of the upvotes and the traction to hit the top of the front page, in fairness, is dependent on non-collusive votes. The issue is that subtle collusion may get products exposure when they otherwise wouldn't in a fair system. (although, that's the startup world in a nutshell. I'm not fond of it.)
I think a lot of this won't be dependent on whether or not the submission is for a YC company, especially since the submitter is often not associated with the product being submitted anyway. I do agree with you about the practice being part and parcel of the startup world though!
With regards to the conflict of interest, I don't see this being too much of an issue. Whilst PH itself is part of a YC batch, the majority of the PH community won't be, and it's them who collectively vote.