In Andy Baio’s case, I do believe that they had rights to sue him for his actions. From my understanding, “fair use” rule only supports the idea of using others’ work without permission for commentary and criticizing purposes, but this is not what was happening. He used the photographer’s work to make his own album cover.
This case, on the other hand; I feel it was following the “fair use” rule slightly better. Things are drawn on the original picture to indicate some sort of a commentary.