To be clear, the fact that Olbermann is an advocacy journalist means he did not jeopardize public trust in his impartiality--there wasn't much belief in his impartiality to begin with. Active support for a party is most dangerous when it is secret, unduly influential, and in violation of public trust. As far as I can tell Olbermann's donations were none of these things. He deserved to be reinstated.
But I still don't like what he represents, considering him as story-breaking journalist more than digestive commentator. Here's why:
Suppose Olbermann as journalist uncovered a massive and genuine scandal in the Republican Party, getting the story from sources which must remain anonymous. His advocacy for one party over the other is a license for the immediate dismissal and denial of that scandal for anyone who wishes to do so. Many of the public will wait for independent verification to be convinced that his reporting is fact and not advocacy, and others will refuse to believe it forever simply because it comes from a "tainted" source. Advocate journalists for the opposite party would certainly deny it forever on this basis.
If you don't believe me, switch the supposition around. If FOX broke a similarly genuine Democratic Party scandal via anonymous sources, I would sure as hell wait for independent confirmation. I would likewise have a permanent excuse for doubt, given their history of advocacy.
Even though Olbermann's advocacy is more ethical than FOX advocacy, reporting that benefits the favored side or harms the other will always carry with it that excuse for doubt. Further, with the proliferation of this sort of journalism, it is easy to become isolated in one's choice of news. these days I can exclude all voices which do not advocate for my views, if I want. That can be dangerous if I see all other voices as tainted--there are few things more damaging to informed voting than the phrase:
"Unless I hear it on FOX, I won't believe it."
Olbermann is again much superior to FOX in sticking to facts, but when there is no acceptable mainstream source for journalism, neither side need admit wrongdoing in anything. Solid investigative journalism loses its impact if both sides feel free to deny, dismiss and doubt anything they don't like.