Both approaches have its merits. The WMF could have copied the toolserver recipe much more easily than gooing the route of labs. They were brave pursuing the VM based system, and it allows solving different problems. But both of them have their use. It's not a case where one should "win" the other, or the toolserver is "bad" because it is currently hosted by WMDE instead of WMF.
Organizations trying to defeat one another will end up with one big loser: the community.
+1. If people *really* love the Toolserver way of doing things, they are more than welcome to re-create the environment as a Labs project.
- Ryan