Knowing Lots of Stuff = Success?

Had a conversation with an AP class the other day. The topic included the cost/benefit analysis of knowing something -vs- being able to do something. My personal view that knowledge is nothing if not applicable was surprisingly (to me) unpopular with some members of the class. A few of these students had anecdotes of people they knew who were "very smart" (later defined as knowing a lot of things) and were successful because of it. I asked them if they thought that these example people would be successful and employed if they didn't also know how to apply their knowledge and do something with it. Some students were willing to entertain that success might be a mixture of knowledge and application skill, but some seemed heavily distraught be the idea. One in particular dug their heels in more strongly as their classmates discussed alternate explanations of success.

My follow up thought is this: clearly, it's a combo. Knowledge without skill is not useful and skill is almost impossible without knowledge. From where, though, did these students get the idea that it was enough to study hard and learn a bunch of facts, that the point of school was to fill buckets, not light fires, that the world needed and rewarded full heads more than capable hands? It seems to me that one of three things is true: (1) their families have given them this narrative, (2) something in the wider culture has created this expectation, or (3) we schools have given them "success" and praise for rote knowledge and not enough experience applying their knowledge and working with their skills on real-world problems. 

Most likely a combo of all three, depending on the student. What am I missing? Do you agree with me about the relationship of knowledge and skill? What's the appropriate balance for schools to focus on?