YouTube's efforts to legitimize its content as a result of its talks with Google will castrate the service. One reason people flock to the site is that clips from old and sometimes not so old TV shows and movies can be found. When I first saw this, I knew it violated copyright law. I also knew that as the site grew in popularity, the copyright issue would have to be addressed. Look what happened to Napster? A legitimate Napster sux. MySpace will be neutered as well, if it already isn't. For all of these services, legitimizing them means removing the thing that made them popular. It's like removing the ability to use the alphabet in Microsoft Word the ability to use numbers in Excel.
Let me give you an example. I can search for “Badfinger” or “KISS” and view some incredible videos on these bands. I can search on “Robin Williams Golf” and see one of the funniest bits on William's theory on how golf was invented. All of this violates copyright law. However, I'd probably never see this stuff or be able to find it otherwise. This is why YouTube is so wonderful.
I still hold out the faint chance that YouTube can negotiate some sort of royalty sharing deal with Hollywood, but I doubt that is realistic. How can they possibly do it in a way that seems fair to all involved? In the end, we will suffer when the only answer is to remove unlicensed copyrighted material.