Earlier quoted context omitted.
How does simply using a different domain protect against malware?
As the article explains, the problem is that SWF files hosted on one domain can execute in the security context of that domain, even when embedded in a page on a completely different site. So allowing attacker-controlled uploads makes any credentials on that domain, such as session cookies and CSRF tokens, vulnerable. If the SWF is hosted on a domain with no sensitive credentials, this particular problem goes away.
I'm not arguing that this attack doesn't exist. I just don't understand what the attacker gets access to.