I disagree. Recognizing an unequal power relationship and reacting intelligently to that is not an admission of wrong. By that logic, not directly attacking a supervillain who has taken over the world and has overwhelming physical superiority (particularly after you've already been smacked down once for trying), and instead working underground to mitigate his negative impact and live life as best you can while you search for a weakness, is an admission that being against his rule is wrong. Not to mention all the real-world situations with respect to governments, etc.
On the other hand, changing, particularly if those changes work against most of what made what you were doing before cool and interesting, strikes me as more of an admission that what you were previously doing was wrong. As you said it, good intentions, but wrong. I don't believe what we were doing was wrong. Technically illegal, perhaps (I think fair use still qualifies), but not wrong.
Now, this is an argument that might not change where you want to go with the community, and that's fair enough, as is your second point (of course, s_d survived for quite a long time without much in the way of challenges. For all we know, this was the equivalent of a half-asleep guy smacking at one particular buzzing insect, and happened to make it go splat. That doesn't mean that other, identical mosquitos can't continue to buzz along for just as long, particularly if the guy doesn't think it's worth the effort to keep smacking), but I took issue with the idea that this _isn't_ an admission of wrong.
Frankly, I don't see any way the community can stay 100% legal, and be anywhere near the joy the original was. It's already lost a good deal of that now with the new limits (somebody posting the regular weekly preview now means nothing else can ever be posted from that issue, and there's little chance of two people enjoying two different aspects of the same issue, and both being able to post, and now we can't even get complete short stories), and it's almost certainly still not legal. So we're left with trying to find a place where even though we're not legal, we don't bother them as much (hell, given the way copyright law is set up in many places, we could be 100% legal and we'd _still_ have to depend on not bothering them because they could _still_ smack us down), and have to do that by feel. And if we're going that route, I'd personally rather take the Hydra approach - keep going in our old ways any way we can until they recognize that there's not much point in smacking us down, because a new head's just going to pop up again, and they're only going to lose goodwill by trying (yes I realize the Hydra metaphor doesn't work all the way there. ;)), rather than losing what was fun and proving them that yes, it was worth smacking us down because they wound up getting what they wanted.