True. However YouTube isn’t a publisher, according to them. They want the Section 203 exemption, but they are acting as a publisher. If they want to be indemnified from libel liability, they can’t pick and choose what to publish as that is a tacit endorsement of what does get published. They can have it both ways.
The are allowed to censor in good faith. That generally means that they need to follow their own guidelines, which does not appear to have happened in this case.
"Good faith" can mean anything at all. And you should be thankful Section 230 exists. If everyone and his dog could sue a company for libelous content posted by a user, you know what would happen? More moderation, real name requirements, and "censorship".
