For #1, see the book "The No Asshole Rule". Does a great job at expanding on this. It happens not just with nepotism, but sometimes because management legitimately believes the employee is valuable. But you have to look at net impact on the org and not just individual impact. You can have an exceptionally talented engineer that chases everyone away due to horrendously toxic teamwork.

Some people are just good at interviews or talking themselves up.

Back in university, most of the students in my Chemistry course had A-Bs (grades were published publicly). The final for the course though was set up by some national body (in the US), and all but a few in the class got no higher than a D. Why? Because the national test was reflective of what students actually learned. The typical university multiple-choice test just self-selected good test takers. I myself got in the habit of only attending certain classes once a month because I knew how to game the tests and still walk away with an A-B average (e.g. have a good idea of what will be tested, know the material well enough that you can eliminate 50% of the false answers, and then make an educated guess on the rest.)

The same is true in hiring. It can be easily gamed if you don't have a great interview process (most companies don't). Even worse, part of that is by necessity. Each candidate has a different set of experiences, but the interview is made to be as routine and consistent as possible to weed out any potential biases (e.g. candidate given purposefully hard question or colored feedback because interviewer didn't like them). To truly vet a candidate, you would need situational questions and feedback, like they quickly glossed over some part of the question, so I'm going to go off-script and drill down into this area. Big companies especially run far away from that due to risk of discrimination lawsuits.