[aaronmdjones]

On the aircraft in question (the 757-200) there are 3 altimeters (captain, FO, standby/backup) fed by two different colocated static ports (that were both taped over). The transponder sends the altitude reported by the captain's altimeter.

This is why the crew trusted the captain's altimeter over either of the other two because it precisely lined up with what ATC was telling them. Neither set of parties knew that they were the same incorrect figure derived from the same source. The captain correctly diagnosed that the entire pitot-static system had gone to shit, but still trusted ATC's figure, right up until they started hitting the ocean, even with the GPWS alarm from the (correctly functioning, entirely separate) radar altimeter blaring in the cockpit for over a minute.