It's clear you don't seem to understand investments, given your assertion:
the IM team did not "pivot" while in YC
Like with any other venture capital or private equity placement, YC starts from the moment the team accepted the investment and ends when the legal entity behind Y Combinator fully divests its financial interests. YC can choose to sell its equity, and their refusal to do so is a tacit approval of the company and its actions.
You are trying to claim that YC has divested its interest. Clearly that didn't happen -- if it already did, then PG wouldn't have had to respond. Stop trying to change the subject by focusing on the application -- the problem you are trying to avoid explaining is on the fact that somehow they went from state A to state B, a massive shift, without anyone at YC noticing (ironically, this is exactly the storyline in the News of the World scandal that you find criminal in one case and plausable in another). YC is a significant investor in most of these companies and (based on their claims) has a sufficiently frequent engagement with the companies that it would be hard to pivot without them noticing.
"I'm not sure where people are getting the notion that YC funds things on some moral basis."
I don't think they are, but PG is in a state of cognitive dissonance: he is trying to claim that he is being "moral" by not sponsoring spam yet is profiting from the practice. That's the part that rubs me wrong (and, incidentally, another aspect of the phone hacking scandal that rubbed me wrong) Defending cognitive dissonance is not just silly -- it's deceptive and does a disservice to silicon valley.