The AP is making the case that they are selling information. And, frankly, it's difficult to refute that argument.
Although IANAL, it appears that we're going through something of a rehash of INTERNATIONAL NEWS SERVICE v. ASSOCIATED PRESS , 248 U.S. 215 (1918) updated for current laws. When information is the product, not the wording, then you can't even summarize the info without infringing.
If this is the case, though, it would impede the members of AP from generating content, as they would then have to be cautious of how they gather their own information.
I think it's a shame that FR doesn't have the resources to stick up for Fair Use, but, of course, many FReepers have shot us in the foot already by trumpeting that they "get their news from FR!" If the purpose is to comment on something, then Fair Use is valid ("to use the passages for the purposes of fair and reasonable criticism"), but when it comes to getting your news...then it's not Fair Use, and the information provider should be paid or not used.
Lots of blogs are calling for boycotts of AP content. Not me. I'm going to keep using it. I will copy and paste as many words as I feel necessary to make my points and that I feel are within bounds of copyright law (and remember, I've got a JD and specialized in media law, so I know the rules pretty well). And I will keep doing so if I get an AP takedown notice (which I will make a big public show of ignoring). And then, either the AP -- an organization famous for taking its members work without credit -- will either back down and shut the hell up, or we'll have a judge resolve the easiest question of law in the history of copyright jurisprudence.