Lawyer Devan Hartline explains everything at his site Copyhype:
Just because Judge Posner did not find infringement by myVidster for the particular embedded infringing videos at issue in the appeal, it doesn’t follow that all embedded infringing videos are therefore legal. That’s like saying that since a jury acquits one defendant in a prosecution for a shooting death, then all shootings that result in death must be legal.
One must separate out the general statements of law made by the court from the application of the law to the particular facts of the case. And with this opinion, that’s not the easiest thing to do—the opinion leaves much to be desired as far as clarifying exactly what the liabilities are for embedded infringing videos.
Suffice it to say that those claiming that sites hosting user-embedded infringing videos can never be liable for copyright infringement are just plain wrong. The fact that Google and Facebook admit as much should tell you how settled the principle is—few have more to lose on that score. If anyone were to deny it, it’d be them.