If they're close to getting acquired, this could be a very good strategy, and could even be a catalyst for an acquisition altogether. This is a VERY nice end game move.
Those "big" lawsuits don't happen till normally later in the game. Those "big" lawsuits also take a very long time, and in the mean time traffic would continue to skyrocket (it already has past ustream.tv by far). I think this is definately a winning strategy, and predict the lawsuit will either A) never happen, or B) will happen far too late to put them out of business.
If jtv had started pimping out pirate traffic a year ago when they first started, things would be different. They're going to make bank off of this. Just watch.