Well you and the other farm operators obviously expected to make some/many coins but now it kicks you in the butt because the diff rocketed in an extreme way and will continue to do so. Also in my experience VPS are almost never profitable and you'd do much better with one or many rootservers. (I pay 43€ per month for the i7 920, 3 cores of it get me 475000 knumbers/s, hetzner ftw)
The Karma thing was a joke, since luck means everything you could say that bad karma from being "greedy" ate up all your luck.
It tells your miner to check every second if there was a new block so you don't mine an orphan. Not sure if 1 is the best/most sane setting, can someone chime in?