Some of the smaller players who've been complaining to the EU really, really needed to be hurt. They were spamming up the search results with their crappy "vertical search" pages which couldn't actually find anything - they just relied on SEO to get them ranked above actual search results and then hoped people would get desperate enough to click them.

You do realize, that because of the increase of content publishers, getting ranking becomes harder anyway (independent to Google).

This is true but when Google's ad clicks increase by 20+% a quarter what you said is irrelevant, Google is keeping almost all the clicks for Adwords. So you're competing with Google's Youtube, Google Local, Google Images, and the whole shebang. Guess who's winning?

As far as I see it there is something of a chicken and egg problem here. Google has often maintained, publicly, that its search algorithm is only interested in providing the most utility to end-users.

To an extent (and in some cases, I except that there are exceptions) this holds true:

If I google for a video streaming website I want Youtube to be at the top of the list. Semantically that is the correct answer to the "question" implied by the search.

So:

Are google services popular because they are highly represented in google's search results?

-OR-

Are google services highly represented in google's search results because they are popular.

I absolutely do not believe that google should feel pressured to artificially demote its own offerings over fears of anti-competition litigation/legislation. On the other hand I can see an argument for clearly marking a result that points to a google service as 'belonging' to google.