First, let me say that SatoshiDICE is awesome and I wish it the best.

High risk doesn't always mean high reward.  The fact that Erik is taking the vast majority of the money to reinvest personally in Bitcoin should tell you what he thinks the better bet is.

Now, I'm all for diversification of one's portfolio but there are a lot of negatives here that have me failing to see the 10x valuation.

Apologies in advance if any of these have already been addressed in this thread:

1.  Service is potentially illegal in many jurisdictions, including the US.
2.  I can't tell if this is actually a registered legal entity, nor whether the paperwork has been properly done to allow investment and protect investors.
3.  The deal structure doesn't resemble so much a company taking investment as it does an individual shareholder selling shares.  Your money, by in large, won't be reinvested in the company.
4.  Is Erik actively involved in growing the business full time or is he devoting the majority of his time to other projects?
5.  It sounds like the company hasn't been keeping any reserves so if it does get hit with a big lawsuit or other expense, what happens?  Does Erik come out of pocket?
6.  If the site is targeted for attack, as other gambling sites are, your hosting bill could quickly become $10k/mo, eating away 1/3 of the profits.
7.  Is it more likely or less likely that if Bitcoin is still around in 5 years it will have faced some form of regulation?
8.  If Bitcoin goes bust, what of value is left for the shareholders?  Does the business have any revenue streams not entirely dependent on Bitcoin?
9.  Does the company possess any assets that are not easily replicable?  Any especially valuable trade secrets, patents, trademarks or other intellectual property?  How about even user information?
10.  Just because the clone attempts so far have failed, that doesn't mean future ones will.  For $300k, someone could do a lot more than clone SD, and own 100% of it.
11.  A bet on a fully Bitcoin-dependent business is generally riskier than a bet on Bitcoin itself, and in this case the expected return doesn't justify it.
12.  What prevents Erik from taking a salary or hiring someone to replace him, or taking on other expenses that will drastically reduce profit?  Is there a board of directors he works for?
13.  Low barrier to entry.
14.  Botched funding round eliminates any possibility for a serious company to purchase SD in the future.
15.  Acts of god.

As someone with experience in investing in startups, I'm going to have to steer clear of this one.  Even if all the business stuff were above board, I'd think that for all the negatives, the valuation wouldn't be greater than 2x, and even that's a stretch.  Again, I'd much rather just put my money in to Bitcoin or save it for a promising Bitcoin business that actually needs it to grow, not just to cash out the owner.  Anyway, can't blame Erik for trying.  I'd gladly take his end of the deal all day long.

Oh, and why raise the funds before the new site is launched?  Usually, you launch your thing and then use that as a basis for raising money at a higher valuation.