Here's some facts on this issue that seems to be missing from most of the comments:
1) Since announcing the closeout, Onno Tijdgat, the author of the Mac irc client ircle, has confirmed he's in discussions with Talk City about making a mac-based client. He has publically stated that ads are NOT part of the discussions of making his irc client 'supported'.
So all the people who claim this is all over ad banners can stick that up their butts.
2) Talk City's network is not like the other major irc networks (DALnet, efnet, etc.) which are distributed across multiple, geographically diverse servers. All Talk City's servers are centrally located. This significantly changes the flooding issues that irc is (in)famous for. There is no significant delay between servers (assuming things are running well ;). This means that clones are a somewhat bigger problem since other networks would have an inherent delay because of their network design. There is no foolproof, effective way of dealing with flooders and clones in this kind of environment. If anyone knows one, I'd like to know (sell it to Talk City ;).
3) Dorao, the channel you were in may have had 35, but that's one channel out of thousands. Talk City limits most rooms to 50 users max so it couldn't have got a lot bigger, anyway. Also, Talk City runs two separate networks so if you connect to chat.talkcity.com you're only seeing half the picture.
Most days, Talk City runs well over 20K concurrent users. Not a DALnet or efnet record, but not too shabby, either.
In either case, comparing them to these networks is not relevant... Talk City isn't irc, they'd prefer the term community... encompassing chat, discussion boards, home pages, etc. They do have more users and higher usage patterns that other similar sites, by which you'd have to consider Yahoo chat, Excite Chat, Geocities and the like (Sammeh, I seem to recall seeing a notice when they surpassed 3.5 million members).
4) 'raw' irc users make up a small minority of all chat users in Talk City. WebTV, EZTalk (java) and their co-branded Pirch client are used by the majority of users. Talk City is obviously betting/expecting some PC users will switch to EZTalk or TCPirch, and the Mac users will switch to EZTalk or ircle if Onno comes through. Sure, they'll gonna see a hit in numbers, but it's not going to be as big as some people expect.
The hosts who've posted here are clearly working in Talk City's '#Computer' forum where you would expect a higher proportion of computer-savvy users using irc clients.
Even if this were about ads (see point 1 above) the increase in users who switch to add seeing clients isn't going to be that high. I assume Talk City's done its homework on the numbers and thinks it can live with it.
5) Whoever it was who said it's all about scripts is wrong. TCPirch has the ability to run regular pirch scripts (at least, I think it has) and I would expect ircle to be able to do the same. It is true, though, that the majority of disruptions to chat are caused by one or other mIRC or Pirch script that some lameass installed. It's blocking these clients that Talk City is aiming at (and I can hear IRCops on other networks wishing the same). As I understand it, TCPirch has other controls to block war scripts while still allowing the majority of scripts to run.
In short, sure, hard core chatters that want to be able to run their war scripts can do so elsewhere. Talk City's clearly making a business decision based on protecting their core users from the lamers. I don't have a problem with any chat (irc or otherwise) where I don't have to deal with jerks on a regular basis.
Now I'm done. I've already used up my quota of brain cells for today.