There are three key concepts involved in Objectivism when tackling the is-ought problem. They are "Man" (referring to mankind, but in terms of the individual person), "Value", and "Morality." Understanding these concepts, in addition to every concept upon which they depend as Objectivists define them, will help you understand how Objectivism dispenses with the is-ought.
Objectivism maintains that concept formation is heirarchical, so these three concepts depend upon a great deal of more fundamental foundational concepts. Defining what every concept that these key concepts depends upon would require hundreds of pages to type out so I'll have to refer you to Leonard Peikoff's work "Objectivism: The Philosophy of Ayn Rand." Specifically look at the first five chapters which cover Reality, Sense Perception, Volition, Concept Formation, Objectivity, and Reason. Chapters 6-9 really would be required reading as well because these lay the foundation for understanding Man, The Good, Virtue, and Happiness.
It's not a very good answer to simply reply "read this book" but because the scope is so broad in this question I've limited the response for the sake of brevity (believe it or not) to the essential interplay between these key concepts at the highest level of abstraction. The important thing to understand is that it is quite impossible to grasp these concepts fully without the prerequisite framework in place upon which Objectivism depends (see Dr. Peikoff's book). Pertaining to the discussion in the comments section of the main question, this is also why Sam Harris falls short of presenting a fully validated framework for an objective ethical system.
The concept of morality Rand describes,
"is a code of values to guide man’s choices and actions—the choices and actions that determine the purpose and the course of his life." 
The key phrase in that statement is "code of values." Specifically what is "value?" This concept requires a little unpacking from the Objectivist perspective.
“Value” is that which one acts to gain and/or keep. The concept “value” is not a primary; it presupposes an answer to the question: of value to whom and for what? It presupposes an entity capable of acting to achieve a goal in the face of an alternative. Where no alternative exists, no goals and no values are possible." 
Ayn Rand is alluding to an even more fundamental realization when understanding the concept of value above and questions, "of value to whom and for what." Essentially what she means by "where no alternative exists, no goals and no values are possible" is explained below...
There is only one fundamental alternative in the universe: existence or non-existence—and it pertains to a single class of entities: to living organisms... It is only the concept of “Life” that makes the concept of “Value” possible. It is only to a living entity that things can be good or evil. 
Now with a rudimentary understanding of how the concepts of morality, value, and life interrelate your initial quote makes a little more sense... what can we say about what Objectivists think about "good and evil" or "moral and immoral?"
In answer to those philosophers who claim that no relation can be established between ultimate ends or values and the facts of reality, let me stress that the fact that living entities exist and function necessitates the existence of values and of an ultimate value which for any given living entity is its own life. Thus the validation of value judgments is to be achieved by reference to the facts of reality. The fact that a living entity is, determines what it ought to do. So much for the issue of the relation between “is” and “ought.”
Note the phrase "ultimate value" she describes "for any given living entity is its own life." This sets up a "standard of value" upon which to build a "code of values" (see the first quote again for "code of values").
The specifics of this Morality (code of values) based on the standard of value (Life) can be unpacked further by looking at who we are as a species. What is man?
Man has no automatic code of survival. His particular distinction from all other living species is the necessity to act in the face of alternatives by means of volitional choice. He has no automatic knowledge of what is good for him or evil, what values his life depends on, what course of action it requires. Are you prattling about an instinct of self-preservation? An instinct of self-preservation is precisely what man does not possess. An “instinct” is an unerring and automatic form of knowledge. A desire is not an instinct. A desire to live does not give you the knowledge required for living. And even man’s desire to live is not automatic: your secret evil today is that that is the desire you do not hold. Your fear of death is not a love for life and will not give you the knowledge needed to keep it. 
To answer your question, "How fatal" I would answer "Not at all."
If human beings are understood as living organisms with specific requirements for survival (obvious), and that a code of values (morality) is a requirement and necessarily must be based on the ultimate value of ones own life (including achieving happiness throughout that life)... then the very concepts of what ought a person do can be easily answered and defended based on individual codes of value, within the context of the ultimate value of ones own life.
Lets better understand another piece of this quote now. My emphasis in bold, and commentary in ellipses.
Thus the validation of value judgments (moral judgments) is to be achieved by reference to the facts of reality (the things upon which those values are based, i.e., life).
This is also elegant and flexible enough (I believe) that it can't be interpreted to mean "every human life must turn out the exact same and we must all have the same set of values." The real beauty of Objectivism, in my opinion, is that it's presentation of an objective moral framework accounts for and explains the illusion of moral relativism within the context of individualism (within the context of an individuals conditional and hierarchical code of values based on that individuals own life). While the "ultimate value" is always the same (that being ones own "life"), and the basic biological questions of what sustains survival are the same, farther removal from these more basic questions doesn't diminish Objectivism's ability to underscore an ought among alternatives... generally in the form of "If you value X over Y then you Ought to Z."
All that which is proper to the life of a rational being is the good; all that which destroys it is the evil. 
"Proper" meaning "that which supports the life of a rational being" or "that which promotes the life of a rational being" etc...