I don't understand why he wanted to reinstall things so often; it would have been much easier (and certainly faster) to just install libraries once.
The first problem is that he didn't read any of the Cabal documentation. He complains that after upgrading his Cabal binary, that it still complains that an update is needed. I'm almost certain this is because he hasn't put the Cabal binary directory (~/.cabal/bin) on his $PATH. While this is arguably something that Cabal should be detecting and warning about, it's also not a requirement unique to Haskell -- any package manager that installs to a user's home directory will need them to change their $PATH.
Continuing on, he installs cabal-dev (good!), then proceeds to not use it. Instead, he tries to jam all of Yesod (a notoriously version-picky package) into his global package directory.
Then he uses cabal-dev to build his new site, and here's where things get weird. It should absolutely not install anything other than what his particular package needs as dependencies. If it's installing the world again, then there is something horribly misconfigured on his system.
Finally, I strongly object to Yesod being considered a "success story". While web frameworks are currently the hip thing, and Yesod is indeed a web framework, to my knowledge it's gained no significant userbase in part due to the huge nest of conflicting library versions that it depends on.
Here's what he needs to do:
# Clean up whatever mess he's currently made
$ rm -rf ~/.cabal ~/.ghc
# Re-initialize Cabal
$ export PATH="$HOME/.cabal/bin:$PATH" # optionally add to .bashrc
$ cabal update
$ cabal install cabal-install cabal-dev
# Assuming that Yesod is using standard Haskell packaging properly, this
# should install Yesod in its own little sandbox so it won't destroy the rest
# of the system.
$ mkdir my-yesod-project
$ cd my-yesod-project
$ export PATH="$PWD/cabal-dev/bin:$PATH"
$ cabal-dev install yesod
# Now Yesod can be used without fear
$ yesod init .
$ cabal-dev install