My point isn't that Lin wasn't good, my point is that we almost got him as a walk-on. That was the market for his services.
And IF we had landed him as a walk-on, and he beat out guys with scholarships, he should have played in front of them, and if he became a starter or major contributor he should have been awarded a scholarship.
Awarding someone a scholarship or preferred walk-on status is a bet on the future (but those are two different bets). Not all great high school players pan out. Some guys who were not so great in high school get bigger and stronger, more coaching or something just clicks. The kids are still doing a lot of developing.
You generally use your scholarships to secure "blue chip" recruits that are wanted by a lot of other programs because a lot of coaches think they project to being a good player at the college level. The investment (a scholarship) is more, but the perceived chances of success are greater. Preferred walk-ons are more guys who are not wanted by as many programs but have good grades (and are often looking at the Ivies as their other option). The chances of success are perceived to be lower, but the investment is lower.
Even though the chance of one of those guys turning into a good college player is lower, there is still a chance. Moreover, the coaches can be wrong. there can be every indication the guy should be ranked higher (Lin). Guys can slip through the cracks. In football, no one wanted Aaron Rodgers out of high school. He had to play JC ball. It happens. Again, Lin is an extreme example, to demonstrate the point. If you can possibly land a guy as a walk-on who later out played Kobe in an NBA game and became an NBA star, who might find one who can develop into a major contributor or even starter at Cal.