First, I don't like URL shorteners for this same reason. Every web server should be in charge of managing long and short urls easily with just one line of code.
Second, how expensive it is to keep the site running? $10 a month for a cheap hosting service and they can make more than that with just google ads.
Now, if they want to live largely just by shortening urls then no, it won't pay the bills.
Since my comment has been modded down to 0, surely someone has more information about tr.im and can post some examples of $10/mo hosting sites that could run it.
1) Url shorteners aren't going away. Like it or not, there's a need, particularly for things like Twitter.
2) I think it's more than that. They did more than just shorten urls, they also tracked analytics on those links, clickthrough rates and the like. You can view charts and graphs about how often links are clicked on, etc. Multiply that by millions of links, and it's not an inconsequential amount of storage and bandwidth. I think you way overestimate the capabilities of a $10 hosting package.
That said, it probably isn't quite a $10 package. On the other hand, it probably wouldn't take much, especially if you cared to take the time to write a custom-purpose HTTP-redirection server.
Actually, that would sort of be an interesting programming challenge: How small and efficient can you get such a server?
You CAN run a social network cheaply, but good luck competing with Facebook / MySpace / Orkut / Friendfeed / Livejournal / et al.
Offering the service with the least amount of features can sometimes be a winning idea, but in this space, I'm not entirely sure that it's doable, considering the major feature works pretty similarly across all tr.im's competition.
Nothing. The design specification was just to "keep the site running", not to support a given feature set, for the purpose of not breaking the links, and nothing else. An extra buck or two from Google would be a bonus, but personally I wouldn't count on it.
You must consider the opportunity cost. How long does it take to code such custom server ? As tr.im is not profitable, its developers' time could be used to produce other product/service that has a better business model and is more profitable.