"It appears Digg.com may have thrown up its hands, conceding its user base has more control over Digg.com than it does."
I can only add that this is due, in all likelihood, to the fact that digg's user base contributes more person-hours to the success of digg than the company's paid employees do.
Of course, I am not privy to digg's quarterly financials, but I am a pretty good judge of how much it costs to pay people to search the Internet for good content and add it to an index. When your users are doing pretty much all the daily work and you are simply providing the software/hardware platform -- that's a good operational definition of Web 2.0 publishing, I'd say -- you are facing more than simply a grumpy customer base in flacks like these.
You're talking about a labor strike.
It's a new dynamic, and it presents some interesting challenges. Certainly, digg's executives must have been feeling the heat on all sides to expose the company to litigation from an entertainment industry that likes to litigate.
It seems there's no easy answer here -- since these Web 2.0 "employees" don't get paid, per se, they aren't likely to be all that worried about losing their jobs if they kill a business by "rioting." There are tons of aggregation sites, although few of them are as useful as digg.com.
The only solution I can think of is to go ahead and pay them. Google has taken that approach, at least to some extent, with Blogger and AdSense. Participating bloggers who contribute popular content get a share of the AdSense revenue generated by views of that content.
It sounds overly simplistic, perhaps, but I do think there's a germ of something here. "Rioting" certainly has a little more sting if you own some of the furniture you're smashing. If YouTube is genuinely interested in "user-generated" content, it can pay folks a share of the revenue it extracts from views of that content. Such a system would segue nicely into whatevercopyright-tracking system Google keeps promising.
More importantly, it would create pressure from the contributor community on users who simply post the latest episode of The Daily Show and then dip into the ad revenue stream. And exposing your publishing partner to litigation might not seem like the best idea, either.
It's way more fun to steal than to be stolen from.