I completely agree with the OP, and so do most of my friends. That's why I don't see it as a selling point. Although we generally agree a few things will happen:
1) They will go the youtube route on IP infringement. I.E. 'if we get an infringement claim, we'll take it down'. The users will then immediately put it back up, just like youtube.
2) 90% of all created songs will be homemade covers of published music.
3) Of the remaining 10%, 5% will be disharmonious garbage, 4% will be 'come play my song its even harder than dragonforce kekeke' and 1% will actually turn out to be pretty decent. No one will be willing to wade through the other 99% to find it. Trying to implement user ratings and the like will just mean that the covers of songs people want but that licensing isn't available for will drown out anything original that's actually good.
4) Profit?? seems doubtful