Sounds like a lot like the old Readability (except with a hard paywall instead of donation model). I liked Readability idea in concept, but it didn't exactly take off.
2. In an attempt to be more viral, they took payment for websites that were non-participants, with the theory that this would entice them to sign up to receive payment. What happened is that they ended up with a pile of zombie cash that they could not touch.
3. They routed everything through their servers, meaning that a large fraction of their costs was controlled by third parties. This is connected to 1.
