Look, the MEL controls. Period.
As Golfer pointed out it is extremely unlikely that ANY carrier has GPS as a no-go item in the MEL.
who's to say these guys weren't freshly hired? Or that they hadn't flown with maps and charts for so long that they didn't feel comfortable flying with them and running the risk of 'getting lost' (Radar/ATC should take care of that problem shouldn't it?)...
I cannot think of a single airline that hires directly into the left seat for a newer 737 like the -400. Therefore it is likely your Captain had several years as copilot on the aircraft. The copilot might have been a new hire but that is unlikely as hiring in the industry has been pretty slow.
Lastly, you simply don't pass checkrides to qualify to fly if you cannot navigate without a GPS. That level of incompetency would manifest itself in many areas other than navigation.
They were either totally joking or you heard it wrong.
