...the program "breeds" competition, because everyone isn't funded equally....

I've heard both about Iowa from people who have been and are there. I think it is a combination of what Silk (above says) about people who whine are people who whine, and a true sense, for a number of writers, that some people are favored above others. A number of past graduates have told me that there is absolutely a sense of some writers being percieved as "annointed." One of those writers also told me how the only writer in their class who didn't get funding was also the most succesful. Competition is good for some people.
Keep in mind, however, that they have a new director, so it is possible that the atmosphere has changed.

If you are in a program where all funding is equal, however, then yes, that would eliminate one possible bone of contention. When you get accepted to a school (or before hand, if you can), the best thing you can do is ask a number of students the pros and cons about the program. They will give you the straight dope. It's good to ask several, though, because not everybody views things the same way, and one person's supportive is another person's competitive.

Sam doesn't seem too keen on the whole TWF thing, so maybe it will eventually go away.

Sam is actively working to get more financial aid for the program.

I don't think the idea of studying creative writing as an undergrad is silly. But as someone who's working part-time as a college advisor, my concern is, what's a grad going to do with a creative writing major? The MFA is unmarketable enough, but at least it's not your only degree.