Short URLs like Tinyurl.com were created for serve a valuable purpose, as URLs get long (think long query string, or SEO friendly long text strings), emailing a link is problematic for those using text mail clients as the text wraps around.
Twitter’s use of “shortened” URLs for the 140 character limit are totally arbitrary. If you are sending it via SMS, the protocol supports a URL being passed along as data, not text. Further, one could always shorten the URLs for SMS purposes and not on the web. And on the website, you could use anchor text, the words that you click on, instead of the URL itself.
Nonetheless, Twitter decided to not support URL as special items, and the shrunken URL became a part of Twitter culture and it is here for any area that posting a link doesn’t show anchor text.
Now WP.me is a horrid idea. Creating a special WordPress.com URL isn’t a horrible think, for those that are Username.wordpress.com, switching to Username.wp.me seems pretty harmless, and offering a shrunken URL format seems fine. The “Permalink” of /year/month/day/URL-friendly-title works for Pre-2000 Internet days that the search engines still live in, making it SEO friendly, but less friendly for today’s world of Social Media and quick URL sharing.
However, that doesn’t appear what they are doing. They appear to be pushing it as a shortening service, so you can still be AlexHochberger.com, but your links will be WP.me/ASDFAD if you choose to use Short URLs. I suppose this serves a purpose for Twitter posts worried about Link Rot, but it also may trap you on WordPress.com. If you outgrow their limited Blog feature set, how do you make certain that your WP.me links don’t rot out. Wordpress.com seems a bit more stable than Bit.ly, but if Bit.ly survives long term, your links are save, WP.me may only work on a single host.
Given Bit.ly’s sharing a VC relationship with Twitter, I think that they are pretty safe, because if they can’t figure out a business model, VCs can usually force a merge up of their two investments.