Lets just put this all in context of the best available evidence.
In 2005, Auckland university compared the grades of its first year students with their NCEA level 3 marks. The results found that 40% of the variation in grades in health science papers could be accounted for by NCEA results, and that 60% of the variation in grades in science papers could be accounted for by NCEA results (this is a LOT better than traditional school examination systems by the way).
Looking at the facts then (rather than anecdotes/feelings), it seems that in Otago HSFY there is most likely a 50/50 split - half of your success will be predicted by how well you did under NCEA, while the other half will be predicted by other factors. Hence NCEA remains a pretty decent indicator of success in HSFY, but there are many other factors, such as your study techniques during HSFY, that have just as much of an impact - hence the stories of people doing poorly in NCEA but well at university (and vice versa). This is of course why we have HSFY at Otago - if school marks were a perfect predictor of university success then we could just have entry into med directly from school.