I think it was a colossal mistake. You can see how where it is heading, with Comedy Central making them pull all their copyrighted clips. They are very exposed legally now, and stnad to lose a lot of their current user base by having copyrighted material pulled off the site.
Ad-driven revenue models are nearly impossible to pull off on the web these days. The bandwidth and disk space alone for a site like YouTube probably eat up a considerable amount of money, however Google has been buying the crap out of dark fiber for a couple of years, so that might not be much of an issue.
I think it was a bad move, but hey what do I know.