no. It means "even though this connection is encrypted, there is no way to tell you whether you are currently talking to that site or to NSA which is forwarding all of your traffic to the site you're on".
Treating this as a grave error IMHO is right because by accepting the connection over SSL, you state that the conversation between the user agent and the server is meant to be private.
Unfortunately, there is no way to guarantee that to be true if the identity of the server certificate can't somehow be tied to the identity of the server.
So when you accept the connection unencrypted, you tell the user agent "hey - everything is ok here - I don't care about this conversation to be private", so no error message is shown.
But the moment you accept the connection over ssl, the user agent assumes the connection to be intended to be private and failure to assert identity becomes a terminal issue.
This doesn't mean that the CA way of doing things is the right way - far from it. It's just the best that we currently have.
The solution is absolutely not to have browsers accept self-signed certificates though. The solution is something nobody hasn't quite come up with.