Instapaper and Readability are two services that allow people to more easily "read" content on the web. You sign up for these services, and they give you a little bookmarklet to install on your browser. When you're reading an article you want to read later, you simply click on the bookmarklet and the content you want to read, is taken off of the website it's on, and put onto one of these organization's servers. Then it's available to you in a beautiful format wherever you want to read it.
The fundamental difference between these two services is how they are paid for. Instapaper is an application that you pay for on your mobile device. While it's free to use on the web, if you want to take your content with you on your iPhone or iPad, you've got to pay $5 for it, all of which goes to Instapaper. Readability on the other hand, asks for an optional subscription to go and support the service.
Readability also distributes 70% of their subscription revenues back to the content providers themselves, effectively paying them for their contribution to the Readability service. In order to get that money, though, a content provider has to register their website with the readability service. That said, readability accounts for the money owed to you, the content provider, whether you opt to sign up for the service or not, thus you can write a killer blog post, get a whole bunch of readability traffic, then sign up for the service, and get credit for the post even after you sign up for the service. But only if you sign up within a year of when you wrote it.
Most of the content that is collected by the publishers is sustained by advertising, and both of these services strip advertising away from the content entirely. In essence, each service takes content from a website that earns the publisher money, and puts it on a website that makes them money. Both allow content providers to opt-out of the service entirely.
Only Readability offers the publisher compensation for the content that they're essentially taking, and capturing value from. I'm puzzled as to why John Gruber of Daring Fireball would go so far as to say that the Readability guys are scumbags for doing so.
Again, two networks are taking content from publishers. One keeps all of the money for itself, the other shares money with the publishers, even in arrears. I suspect that neither of these companies are "scumbags" (here are some scumbags) but I'll leave it to you to decide who is more ethical in this situation.