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Bill Gates makes the claim that Masters degrees don't increase the ability of teachers in his TED talk.

What are the characteristics of this top quartile? What do they look like? You might think these must be very senior teachers. And the answer is no. Once somebody has taught for three years their teaching quality does not change thereafter. The variation is very, very small. You might think these are people with master's degrees. They've gone back and they've gotten their Master's of Education. This chart takes four different factors and says how much do they explain teaching quality. That bottom thing, which says there's no effect at all, is a master's degree.

Is this true?

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The OP is quoting something which Gates says at about time 13:00 in the talk. – ChrisW May 15 '11 at 17:57
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Added citation from transcript. – Sklivvz♦ May 15 '11 at 19:18
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It could be that the sort of people who tend to get their Master's tend not to be the better teachers in the first place, and so it could have an effect but not a correlation. – David Thornley May 15 '11 at 19:36

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He says that being a 'top teacher' (however that was measured) doesn't correlate with having a master's degree.

That's not quite the same thing as saying that getting a master's degree won't make you better.

It's saying that it's something other than a master's degree (and, he said a few seconds earlier, something other than long experience, too) that's important.

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I've added the verbatim transcription in the OP, maybe you want to revise the answer (which, by the way, is not referenced)? ;-) – Sklivvz♦ May 15 '11 at 19:25
@Sklivvz - I'm referencing the TED talk which you cited. No I don't want to revise the answer. In the context, "no effect" means "no statistical effect": no correlation between the population of top quartile teachers and the population of people with Master's degrees. That's not to say that getting a Master's doesn't improve an individual's teaching: only that their teaching still isn't then necessarily any better than others', who don't have a Master's. – ChrisW May 16 '11 at 5:04

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