There's one issue here: it's not allowed.

Companies are obligated to abide by labor laws. If something is an unpaid internship, they must adhere to strict guidelines. There are, in fact, six guidelines for an internship:

1. The training, even though it includes actual operation of the employer’s facilities, is similar to training that would be given in a vocational school.

2. The training is for the benefit of the student.

3. The student does not displace regular employees, but works under the close observation of a regular employee.

4. The employer provides the training and derives no immediate advantage from the activities of the student. Occasionally, the operations may actually be impeded by the training.

5. The student is not necessarily entitled to a job at the conclusion of the training period.

6. The employer and the student understand that the student is not entitled to wages for the time spent training.

#4 is the big one: if the company derives an advantage from the operation (like the person writing code for a system, fixing bugs, etc.), it isn't allowed. #3 would potentially be violated in this case as well since I'm assuming that he wanted to do the work of a regular employee and prove that he didn't need such close observation - I'm not sure a startup has the employees to offer such close observation.

The Department of Labor's guidelines might sound harsh, but they're there to prevent companies from requiring a free period before hiring people. Imagine if companies started posting for jobs that they might hire you for after a free period. Two months later, you've given them free labor and there's no job. Even if there is a job, requiring people to work a free period makes it very hard for people to leave jobs for a new one and would reduce job mobility. People would stay in jobs that weren't good for them just to avoid the free period - at the end of which, they might be unemployed.

It sounds like a good idea when you're talking about one person doing it with a cool startup like Boxee. However, if this were to become commonplace (or more commonplace than it is), it could be terrible for the economy as people cling to safety rather than moving to something else. And it isn't as if the current employment law is that restrictive. For a two month period (working full-time) they could have paid less than $2,000. American companies have no obligation to continue employing you if you are an employee at will. My company specifically has a 6-month trial period where you're paid and all, but if you're let go there's no severance. So, it isn't an onerous situation where you're stuck with someone if they aren't a good fit. You can easily be hired at a low-paid position and then be "promoted" after the trial period or let go.

EDIT: http://laborlaw.typepad.com/labor_and_employment_law_/2007/1... - that's a good post on the problem which specifically says, "you can not deliver mail, sort files, file papers, organize a person’s calendar, conduct market research, write reports, watch television shows and report on them, read scripts, schedule interviews, or any other job that assists the employer in any way in running their business."