No one really argues that Smith was right to go with the story as he did — bold headline, a single, unverified source. Not even Smtih argues that. And as Tabin notes, Smith was transparent and forthcoming as he had new information. Smith and Politico blew it by any journalistic standard, which they acknowledge.
But these things happen. Why is it emblematic of the “blogosphere”? First, these mistakes are common enough across the media. Second, Politico is hardly a bunch of rank amateurs. The editors include veterans of the Washington Post and Time, and the quality of their work so far reflects that. If anything, they are merging the best of old-school reporting and a new medium — producing an open style of reporting and journalism. In this case, blogging worked to the advantage of accuracy, enabling Smith to change the story and the headlines as the story developed.