Whats in A Copyright ?

I'm having a little trouble understanding the inherent logic employed in Professor Lawrence Lessig's "In defense of Piracy" writeup in the WSJ concerning "fair use" and "terribly recorded" original copyrighted songs /amateur music videos on YouTube .
I agree that there are many absurd and frivolous copyright claims in court nowadays . And he does list some interesting change suggestions for Copyright Law. But on the other hand, I've found it fascinating how facts and intentions can be conveniently redirected and neatly filed under the all encompassing protective guise of copyright claim invoking.So the copyright claim misuse swings all six ways when it comes to misconstruing the original intent.

In this particular article though , It’s not clear how capturing “priceless moments” of a kid dancing along to a "terribly recorded " copyrighted song , and making it available to the public on YouTube, for whatever reason, can ever be considered fair use?
I would think that "badly recorded" would by default be considered poor use, cannot be used this way or utter mis use.

The four factors for deciding if a fair use defense exists are as follows:

1) "The purpose and character of the accused use."
2) " The nature of the copyrighted work"
3) "The importance of the portion used in relation to the copyrighted work as a whole".
4) "The effect of the accused use on the potential market for or value of the copyrighted work."

What does fair use have to do with anything? The fact that there is no commercial gain in this particular instance does not prove in any way that there is no harm on the potential market for or value of the copyrighted work(s) in question.
The copyrighted work being the "terribly recorded" song, no not a creative remix , the original song less the orginal optimum listening sounds , in less than optimum listening conditions, in fact “the quality of the recording was terrible” was duly noted, and in a domestic childcare setting. This clearly may or may not affect the opinions/purchase decisions of first time listeners/fans looking for Prince’s songs on YouTube or any kind of search engine that includes YouTube links.

So It’s not exactly a textbook case of “transformative use”, as in a transformed piece of work featuring new views, understandings and or insights.
It’s the exact same original work (song), only terribly recorded, and made available to millions of viewers to watch and listen to in a somewhat harsher, fuzzier, barely, audible and less than favorable light. Let’s not forget the marketing and branding music videos that songs are creatively ensconced in. Did Prince originally record his song with dancing babies in a house ? I don’t think “transformative use” is the correct claim here. Other than ruining the song, a badly recorded amateur music video does not transform the work in this way.
And let’s not forget this fun fact lawyers and men of all ages :
“The Supreme Court has said that a “transformative work” is one that “adds something new, with a further purpose or different character, altering the first with new expression, meaning or message”. (Citation upon request).

And I don’t think it qualifies as a derivative work either. According to Mister J Thomas Mcarthy, “in order to be a derivative work, the new work must be more than merely “inspired by” a prior work".

A terrible recording of a song in a house is definitely not more than "merely inspired", I would think thats way less than inspired.

I believe it should be the registered copyright holder's choice, on as to whether or not he allows copyrighted songs he originally created ,to be subsequently made available on YouTube as poorly recorded amateur music videos by others .