Generally speaking there are two broad camps in this argument

There's at least one more camp. Those who think that there's large body of evidence that, all other things being equal, a good co-located team will be much more productive than a distributed one.

And I say this as somebody who lives in a relatively rural part of the UK, runs their own company, and spends a pretty large chunk of my time telecommuting and working with other remote workers (because, often, all other things are not equal :-)

For example:

http://conway.isri.cmu.edu/~jdh/VRC-2008

"It doesn't take much distance before a team feels the negative effects of distribution - the effectiveness of collaboration degrades rapidly with physical distance. People located closer in a building are more likely to collaborate (Kraut, Egido & Galegher 1990). Even at short distances, 3 feet vs. 20 feet, there is an effect (Sensenig & Reed 1972). A distance of 100 feet may be no better than several miles (Allen 1977). A field study of radically collocated software development teams,[...], showed significantly higher productivity and satisfaction than industry benchmarks and past projects within the firm (Teasley et al., 2002). Another field study compared interruptions in paired, radically-collocated and traditional, cube-dwelling software development teams, and found that in the former interruptions were greater in number but shorter in duration and more on-task (Chong and Siino 2006). Close proximity improves productivity in all cases."

http://www.springerlink.com/content/0137yud7c3k8xryw/?MUD=MP

"Based on the empirical evidence, we have constructed a model of how remote communication and knowledge management, cultural diversity and time differences negatively impact requirements gathering, negotiations and specifications. Findings reveal that aspects such as a lack of a common understanding of requirements, together with a reduced awareness of a working local context, a trust level and an ability to share work artefacts significantly challenge the effective collaboration of remote stakeholders in negotiating a set of requirements that satisfies geographically distributed customers"

http://ieeexplore.ieee.org/xpl/freeabs_all.jsp?reload=true&#...

"Our results show that, compared to same-site work, cross-site work takes much longer and requires more people for work of equal size and complexity. We also report a strong relationship between delay in cross-site work and the degree to which remote colleagues are perceived to help out when workloads are heavy"

http://kraut.hciresearch.org/sites/kraut.hciresearch.org/fil...

"Our findings reveal that: software developers have different types of coordination needs; coordination across sites is more challenging than within a site; team knowledge helps members coordinate, but more so when they are separated by geographic distance; and the effect of different types of team knowledge on coordination effectiveness differs between co-located and geographically dispersed collaborators."

http://www.computer.org/portal/web/csdl/doi?doc=doi/10.1109/...

"One key finding is that distributed work items appear to take about two and one-half times as long to complete as similar items where all the work is colocated"

http://possibility.com/Misc/p339-teasley.pdf

"Our study of six teams that experienced radical collocation showed that in this setting they produced remarkable productivity improvements. Although the teammates were not looking forward to working in close quarters, over time they realized the benefits of having people at hand, both for coordination, problem solving and learning.Teams in these warrooms showed a doubling of productivity"

I could go on....

There are certainly arguments for telecommuting being more productive if you have a bad onsite working environment. My ideal solution is to fix the bad environment if at all possible, rather than distribute the team.