Don Dodge has a great piece covering the issues that YouTube and Myspace are dealing with. He goes through these 3 big legal issues and then ends with some sage advice:

OK, three big problems to deal with. Then they have the backlash from indignant users to deal with. Read this post Screw YouTube from a user who had some content removed from his "account". YouTube is trying to do the right thing here. They get complaints from copyright holders so they need to take down certain files. Users get angry with YouTube, and accept no personal responsibility. The users don't seem to understand that what they are doing is illegal.

YouTube and MySpace need to walk a fine line to comply with the law and social responsibility, while at the same time providing their users a great service with a "cool" edge. It would be pretty easy to mess this up, offend both sides, and end up with a PR nightmare. Handled properly they could have a huge success.

Hopefully the VCs involved will provide the experience, experts, and money needed to manage these issues. YouTube and MySpace could be grand slam home runs...or strike outs. How they handle these issues will ultimately determine their success.

Don highlights the damned if you do, damned if you don't predicament these sites are in. They have 3 big legal issues they must deal with: preventing minors from uploading/viewing porn; ditto for copyrighted material; as well as educating minors how to protect themselves from sexual predators. But, if they crack down too much removing files and closing accounts (atleast on the porn and copyrighted material), they are likely to piss off their users.

See also Business Week on angry users, Boing Boing on Colbert being removed from YouTube because of copyright violation, Youtube's bandwidth costs at Suicide Girls, amateur video at the Fourth Estate, Commercial of Kate Moss getting aroused by Nikon Coolpix Camera - on YouTube, Nelly Furtado goes Christina Aguilera in her Promiscuous video - also on YouTube - copied from MTVNathan Weinberg getting kicked off of YouTube because of copyright violation. That's enough.