I have never seen or heard of this happening. I have had managers who would not be able to do the grunt work, but they certainly weren't hired because they couldn't do that work.

For what it's worth I also think the Peter Principle aphorisms are wrong. These basically revolve around the assertion that many managers are incompetent because they got promoted based on competence at a lower role, and therefore if they have been at the same level for a while it implies they are not good enough to advance. Well, it's true that management is a different job function than the actual domain functions, but people can and do learn. It's also not mathematically possible to move up indefinitely, because there just aren't enough management roles for that. Unfortunately, some people take jokes too seriously, as I'm sure was done with this post.