The argument boils down to "we should let them break the law because then all the criminals are in one place". Which is absurd. Craigslist was profiting from prostitution, which is both illegal and morally repugnant.
Also, newspapers were hosting identical ads 10 years ago, and were charging for it. Isn't that worse?
Edit: After checking, they did charge for adult ads, after pressure. But my 2nd point still stands, how is it different from newspapers?
http://en.wikipedia.org/wiki/Prostitution_in_Nevada
Here is some moral ambiguity... http://en.wikipedia.org/wiki/Sex_surrogate
The "sex surrogate" stuff is pseudo-scientific nonsense, and has no relation to what was being offered on craigslist anyway.
Craigslist has said it had donated all revenues from its "erotic services" listings to charity. When it switched to its "adult services" listings last year it said it would make no commitment to how those revenues would be used.