Of course they are trying to give the end user something, there are plenty of brilliant people at both Microsoft and Google that know this.. lawsuit wise and exec wise well what can I say, lawyers and execs love to play thump the chest moves lol, I generally tend to ignore legal depts.
Most of its nothing but technicalities in laws anyways, and fail to consider that technology trends are converging, not diverging, and multiple companies are going to claim infringment, copyright, trademark, he stole this or that, but in reality there's only so many ways you can have claimed to have invented a new table or a new universal design, Legal doesnt consider this though and they all go ring around the rosy, and will continue rattling sabers. Anyways point is, most the legal is just noise and not representative of the company. I look at it from the core, as in the programmers, the program managers, the design team. Those guys have done an awesome job in both Google and MS, and Apple, so I'm happy to support them all. INCLUDING them wanting to get a youtube app from Google.
As far as apps, well of course, their app store stuff is just begining, they've been slower to develop the store and they are going to be more restrictive till they get a good feeling for what they are doing with their apps and stores. I suspect you will see it open up some after a while of getting cozy with it.
What I do find kinda silly is that it would be rather easy for MS to write an app that'll parse through youtube, reconstruct its navigation, and then use the link to retrive the flv file for streaming and convert/play as necessary. SO while I frown on googles decision, MS does have alternatives it should use