See, that's the mentality I don't get. Google OWNS YouTube, and make no mistake about it, they are a business. The ads in YouTube do provide Google with profit, but at the base level they also help pay for the massive hosting costs associated with all of that video content, comment system, etc. I don't see this as bullying, I see this as Google defending its property against a huge company who is trying to skirt the basic rules to make their product look better to consumers. All at the expense of Google, I might add. This isn't Google "doing evil" as some have implied - this is Google defending themselves. Would you rather Google just rolled over and took it? Sets a very dangerous precedent there, and opens the door to massive potential abuses. Unless you really don't care if YouTube folds and goes away? Don't delude yourself, if Google finds that YouTube has become a money pit, they will pull the plug and move on. That's business.
The bottom line is this: while I agree with Chazz and others that this is really all just a pissing match between 2 mega-powerhouse corporations, the fact is that Google owns YouTube, and can set whatever requirements they feel is proper to protect their investment and expenses. That puts Google in the right, and Microsoft in the wrong on this topic, plain and simple. As I said before, if Microsoft doesn't like it, they can go out and spend billions to make their own competing video hosting system, then do whatever they want with it.