Theora is VP3+few well documented modifications. Youtube for years and still today used on2 codecs (through flash) which are all based on VP3 with optimization. If Theora and therefore VP3 were patent encumbered so would be all the codecs used by youtube, hulu, vimeo and all sites that use flash video. Now if I had a patent on vp3, would I be crazy enough to wait for theora to be successful in order to sue the hell out of everyone? Or would I have already been suing google, adobe and friends?

That's what make patents in theora extremely unlikely IMO. That and the fact that theora devs are extremely cautious on the matter, this is also the reason why theora is not as good as it should be (avoiding patents at all price).