Earlier quoted context omitted.
No, Digg is how Reddit became crappy. A pictures sub-reddit might help fix it. But news.yc definitely does not need subs. It IS a sub and nothing else.
Really? I thought Reddit went downhill about year and a half ago. More users = diluted content. I was almost surprised when I saw a Paris Hilton story hit the top not too long ago. I'm eagerly awaiting PG's new news site.
http://journal.dedasys.com/articles/2007/06/11/dunbars-number-and-online-communities
As someone comments, stumbleupon is a little bit better, because instead of having one home page for N people, which simply cannot scale, you are more closely connected to people who share your interests. I'm not sure how that works out for news sites, though.
Part of the problem may be that, initially, concentrating your user community might be the only way to go beyond a critical mass of users, but then as growth continues, you do want to spread people out.