Ebay prosecutes for Shill bidding  

Maybe it's
just a PR stunt, created for eBay to improve their image.

Oh
I dare say he was picked out to be made an example of..
eBay virtually condoned shill-bidding when they begun to hide bidders details, and, of course, if prices are hiked so are fees.. and eBay wins.

You said it
Ebay has no interest in curbing the shill bidding as they win every which way.
If you are addicted to coke is your dealer going to cut you a cheaper deal?? maybe it's time for the monopolies commission to look at ebay as there seems to be no competition on the online auction market in the UK?

Also sniping...
You'd think Ebay would have the technology to extend an auction time by an extra few minutes if bids were placed in the last minute. This way people wouldn't get discouraged about bidding and the seller and Ebay would make more money. Shill bidders may not be willing to bid so high with this system. I know some auction houses do this but Ebay may be too large to pull it off.

Zanone--
I don't use Ebay much any more, but I've always thought that the practice of sniping is ultimately a bad thing for sellers.
In a live auction they'll give bidders fair warning, with Ebay's firm ending time, it's become a game of last-second ambush. I don't see why auctions can't be extended until, say, there are no more bids during the last minute-- a full minute passes with no additional bids, auction over.

Sniping
The majority of serious/frequent buyers on eBay are using sniping, so I don't believe extending the auction time will have much impact on the final price. Buyers would simply adjust their bidding practices accordingly. And I don't believe that sniping is necessarily bad for sellers... just bad for those few bidders who don't snipe and aren't aware of it.
[Edit: Actually, the only way that sniping is bad for sellers is that it counteracts shill bidding.]
Since almost everyone is sniping, it is essentially the same as a regular auction, just compressed into 10 seconds. If a buyer wants to guarantee their success by placing a snipe for some ungodly amount.... I say congratulations and more power to them.

and just
and just hope there isn't another potential buyer that's done the same 😉

Funbidders
"Why the hell else would ebay create an option for 2nd chance if not to acknowledge the fact that people bid on their own stuff !"
Simon, unfortunately the answer to this question is: funbidders. (Although they're absolutely no fun to the seller at all !)
I'd pretty much bet serious money that this is reason nr 1 for 2nd chance offers: bidders stricken with bidder's remorse that never follow through with their end of the deal= paying for the item.
It's pretty damn annoying these non-payers, and Ebay does not seem interested to do much about it. In the end you as a seller need to find a new buyer. Your best bet is to contact the people that already did bid on your item in the first place. Unfortunately, when you contact them with a 2nd chance offer, most people don't trust it -as you already did mention. There was a discussion in another forum a while back, with one seller saying that only 1 out of 5 people that did originally bid, did agree to the 2nd chance offer for the price they initially did wanted to pay for the item. So if that's the way shill bidders operate, through 2nd offers, I don't believe that they will have much luck that way. Other bidders are never forced to accept a 2nd chance offer. It's merely an option, to accept or decline at the buyer's wish (as it should be, imho).
Now, if shill bidders work differently, and somehow manage to cancel the highest(=fake) bid, so that the auction winner reverts to the second highest bidder (the only "real" bidder), thereby forcing the real bidder to purchase at an artificially increased price, then that's the real fraud.
I don't condone shill bidding at all, I think it's stupid. I do believe sellers simply have an interest in telling people what their minimal price is for which they would be okay with selling the item (e.g. starting an auction at a certain start price, or using a Buy Now or Best Offer formula). In the end, I believe that all these mind games are simply non-ethical and counterproductive.
edit: I think most DA' ers already know this, but to avoid Funbidders and other trouble, Ebay sellers can both block certain buyers (by putting their Ebay names on their blacklist), and can select general buyer requirements (e.g. choosing to block all buyers that have gotten 2 or more strikes for Unpaid Items in the last year) => My Ebay/ Account -tab, next to "messages" -tab/ Site Prefs/ Seller Prefs/ Buyer Req.

I buy on eBay alot
and often get sniped, but I have not noticed shill biding that I know of.
One thing I DO hate is that by masking the bidder's eBay name, you don't know if the bids are real or not.

I have wished there was an...
I have wished there was an "eBay" for MCM only for a long time. Any takers? Teh poor man's Wright?

The problem extends beyond "funbidders"
Without exception, every time I've posted an item on Ebay for "Local Pickup Only" (often the case with furniture), the winning bidder emails me with instructions on how they'd like the item shipped. So, it's on to the 2nd chance option, which, as previously stated, rarely pans out.
As for the incremental bidding, I've seen it many times on my own auctions, so I know it's not a shill. It's invariably a noob with a single digit rating, who obviously doesn't understand the way Ebay's automatic bidding works.
As an occasional seller, I'm a fan of sniping. From the seller's perspective, the longer the price stays low, the more followers and bidders and auction will garner. As a buyer, I've been disappointed by losing a snipe. But then, it wasn't the timing that lost me the auction. It was my low bid. Finally, sniping actually makes the Ebay auction more like a standard auction. I just assume that every auction is 5 minutes long, and that the week leading up to it is just the catalog preview period.

I still contend that the practice of sniping results in lower prices
1) while a lot of savvy bidders do it, not everyone does it.
2) why do savvy bidders faithfully snipe, anyhow? Because they know it's in their interest not to betray any interest until absolutely necessary-- during the final moments.
3) people aren't scrupulously rational & faithful to a supposed "maximum" during live auctions, why would human psychology be different for an internet auction? Prices sometimes go sky high during live auctions in response to competitive bidding, hence people pay more than they may have thought they'd be willing to pay, beforehand. In an Ebay auction where the competition isn't apparent until it's too late to adjust one's thinking, this dynamic is completely lost.
If this weren't true, sniping wouldn't be the de facto Ebay bidding strategy.

And I still contend
That sniping counteracts shill bidding.
Unless of course, a shill bidder is sniping as well.
In that case, the seller wins every time!

Since sniping discourages ALL retaliatory bidding
it must, by extension, also discourage retaliatory shill bidding as well.