I doubt that his comment was made as a serious suggestion. My guess is that Levy cited the case law that upheld the rights of a company's critics to own whateversucks.com domains, and Gale replied "Well, why don't you use prospersucks, then?"
I'm not so quick to underestimate an opponent, although this may very well be the way it transpired.
I really wonder if Gale came out with this in an attempt to determine what the sentiment is towards Prosper. If this was the case, then he got an earful and has to be convinced most of us still want to see Prosper succeed; that no actions are malicious. Hopefully he realized then it is a dead end, and reported back to Prosper that they are really barking up the wrong tree.