It's a threshold thing
From a commercial standpoint, a total rewrite of Netscape would have bankrupted any company that did such a thing. I'm glad that Mozilla rewrote the browser from the ground up, as it is a much better offering as a result. But the time involved also saw Netscape's market share fall off the end of the world. This is a case of Open Source keeping something alive where the shrink wrap world could not have possibly survived.
The bigger problem is not that you should never rewrite like Joel says, but when is it technically and economically justified. The threshold for rewriting from scratch needs to be set high simply because a lot of developers lapse into the mindset that it will cure all the ills in one fell swoop.
