Much like Napster, his only real crime was success. If nobody or barely anyone used Megaupload, he wouldn’t have been in as much trouble. He paved the way for streaming and digital distribution of media. Megavideo in particular had the highest encoding rates possible at the time, even superior to YouTube.
YouTube is way more successful than Megaupload or Napster. The difference is that YouTube went above and beyond to comply with the law and Megaupload and Napster didn't.
History just gets rewritten daily.
They took probably 10 years to attempt compliance at all. What's more, Google Video never had any organic participation (i.e. normal people uploading videos of themselves), and was almost exclusively pirated content. Its main differentiation (long forgotten in the age of youtube-dl) was actually how easy it was to download that content compared to Youtube, who made it annoying. Eventually Google realized that they still weren't going to attract the pirates/copyright violators that section 230 allowed them to use as a proxy (piracy still preferred Youtube because people were on youtube), so they bought it.
Youtube was absolutely loaded with copyrighted material, and the source of lots of pirated files still being traded is directly from youtube. Eventually they started aggressively scanning things for copyrighted music (because they wanted to make deals with the music industry), and then started preemptively responding to any DMCA claim by suspending the video so as not to look like hypocrites while they were going after music; section 230 implies a lot of helplessness for platforms in the face of users that removing audio tracks from videos where people were singing copyrighted songs doesn't bear.
They started getting rid of pirated (and amateur content in general) once they had the monopoly on video, not before. Now they wanted to push exclusive, expensively-produced content, and since producers didn't have any other online outlet, they were going to monopolize that, too. They didn't need the pirated content anymore.