I think it has to do with the fact that the videos don't actually reside on your server, but rather are being referenced to a video that resides elsewhere (using the object embed thing). It wouldn't be copyright violation since you aren't claiming ownership and the watermark of the referenced video remains intact (videos grabbed from youtube will have the youtube logo on it).

Video Swiper is like having a Niche Video script on steroids.

You can see my site populated with nothing but Swiped videos at http://jammervision.com

It's like the Niche script only people can comment on and rate the video and you can change the title and description of the video...something the Niche script doesn't do.