Sorry to be cynical, but the YouTube Awards sound like an attempt to highlight non copyrighted material before they go to trial for copyright infringement in the Viacom case. We did the same thing at Napster. We called it the New Artist Program or NAPster. The idea is to show the courts that there is "substantial non-infringing use" of the service.
Mashable hints at the unusual timing of the announcement;
It’s hardly a surprising development: online contests are gaining steam (as predicted) and it’s a good generator of positive buzz as YouTube deals with some legal woes. The only problem is that they’re a little late: honoring the best clips of 2006 in March 2007?
It is all about the Viacom lawsuit. In the Sony Beta Max case they argued successfully that video recorders were not an instrument of copyright infringement because they had substantial non-infringing uses. The courts decided that although some users may use the product or service to violate copyrights, there were enough non-infringing uses that Sony could not be held liable for the violations of its users. It worked for Sony but it didn't work for Napster.
YouTube will also try to use the DMCA "safe harbor" exemption to insulate them from liability. The DMCA law says that if you are a web hosting company (web sites, discussion groups, etc) that you can't be held liable for the actions of your users...if you follow the provisions of the DMCA. One of those provisions is to "take down" infringing content when notified by the copyright holder. Another assumption of the DMCA law is that the hoster has no reasonable way of knowing about copyrighted content and no way for screening it out. Again, Napster lost on this exemption too.
Legal issues are always complicated and open to interpretation. Google/YouTube have plenty of money to hire good lawyers. My guess is that the case will be settled quietly out of court. The risks are too high to go in front of a jury. The YouTube Awards will be another helpful piece of evidence in their defense strategy.