The RAND Corp folks produced the following analysis of Value-added Measurement in 2003:
The research base is currently insufficient to support the use of VAM for high-stakes decisions. We have identified numerous possible sources of error in teacher effects and any attempt to use VAM estimates for high-stakes decisions must be informed by an understanding of these potential errors.
http://www.rand.org/pubs/monographs/2004/RAND_MG158.pdf
If you want something more recent, check out this one from the National Academies Press, 2010: Despite a substantial amount of research over the last decade and a half,
overcoming these challenges has proven to be very difficult, and many questions
remain unanswered--at a time when there is strong interest in implementing
value-added models in a variety of settings.
http://www.nap.edu/catalog.php?record_id=12820 (pdf available free)
BOTTOM LINE: VAM isn't ready for prime time. I personally think that anyone whose job is threatened as a result of these mathematical gymnastics should run, not walk, to their union rep or attorney and challenge the findings. It does not meet the standard of general acceptance of validity and reliability.
Note: Grant Wiggins' post at http://grantwiggins.wordpress.com/2012/05/06/value-added-why-its-use-makes-me-angry-or-good-idea-gone-bad/ pointed me to these references, and others.
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