I spent an hour last night interviewing Tony Dearing and can clear up a few misconceptions.
I imagine when the site is fully staffed, it will employ as many, or more, professional reporters as the Ann Arbor News currently does (between 20 and 25, I'd guess), paying them between 30k and 40k with less generous benefits. They will prioritize sports, still travel with Michigan, and provide Michigan coverage for MLive and all the other Booth papers in Michigan. They are not planning to rely heavily on user generated content. Reporters will be expected to take photos, blog, post video and audio. They will be given wide leeway to write opinion.
So, where's the savings come from? Well, the News employs more than 200 people overall and more than 50 people in the newsroom (of which, again, probably 20 to 25 are reporters/photogs). I'd be surprised if AnnArbor.com has a staff that's 25 percent the size of the paper, and it might be smaller than that. And they'll be getting less pay and benefits.
I expect the majority of the staff will not come from the current paper.
More info in an interview with Dearing on my blog:
http://papertigernomore.blogspot.com/
I'm holding off on opinion until I process the whole thing a bit more. For the most part, I'm just very sad, and sometimes angry.