Witness this in this week's Publisher’s Deal Lunch: “Rights to Maryann McFadden's originally self-published first novel THE RICHEST SEASON, about a corporate wife who runs away and settles on Pawleys Island, SC, working as a caregiver for an elderly woman, to Ellen Archer at Hyperion, with Leslie Wells editing, at auction, in a two-book deal, for publication in summer 2008, by Victoria Sanders at Victoria Sanders & Associates (world English).”
Two Portland authors who were self-pubbed have gone on to sell to the big boys: Craig Danner and Michael Hoeye. Both started their own imprints and grew their books locally.
One thing I haven’t heard of: an author "published" by AuthorHouse or Publish America who got picked up by a big house. (Full disclosure: To me, seeing those names on the spine of a book would make me think less of a book. Call me biased.) Anyone know of any examples?