Based on the law, it sounds like the exemption they are trying to fall under was most likely intended for local rebroadcast in areas not within reach or are blocked geographically from the services by the original tower. The more cities they serve, the less they are remotely falling under these guidelines. Having a Board of Directors probably doesn't help as well.
I think Locast should be legal, but I have a doubt thinking they'll be found as such. This would be a great time for the FCC to address the locals redistribution issues faced by Cable/Sat for the last decade plus since DVRs became typical.