(1) Only some cities use medallions. Many do not. Many more have little to zero taxi presence - you won't see cabs waiting on city streets to pick folks up. Gotta call to get one and wait. But there is a slew of other regulations to follow - such as having a special category of drivers license. The options for Uber are to follow laws or work on changing them if they want to work legally. In my opinion, this is Lyft's greatest strength. They tend to work with others.

(2) Suing isn't illegal, and a valid form of getting things changed. And sure, others can benefit from this way of working with instead of against the system, just like a ruling on gay marriage isn't limited to the one couple that sued. Or like civil rights aren't limited to the few that caused problems. Asking Lyft to stay away because the market was helped by someone else doing things isn't exactly fair (Lyft has been going into markets as well and trying to change things, so I refuse to give all credit to Uber. Uber simply gets more press).

Lawsuits aren't really the thing that is unethical, though. We expect companies to not spy. Not outright break the law. Treat people equally. and so on. This applies to lyft as well as Uber.