I've worked in that kind of arrangement, too, but it only works well if all the people put into that office are predisposed to it or otherwise able to develop that team atmosphere. Everyone has to be able to get along. That doesn't happen for every group out there.

If it doesn't work out, it can quickly develop the same appeal as a holding cell in a jail - all of the drawbacks of an open office plan in a confined space.

Programmers and engineers are professionals, and in my opinion, it's very unprofessional for a company to provide less than a reasonably private work environment. That means a large cubicle, at minimum. For collaboration, there should also be several open or group spaces. Requiring too much "togetherness," however, is just a sign of poor management and lack of respect for employees.