The libian govenement has outsourced control of the .ly root name space to a (libian) organisation, “LL ccTLD“, which is not the government, (The UK does kind of the same thing, it delegates to nominet). The administrative and technical representatives to the Internet Assigned Numbers Authority are part of “LY ccTLD”, but their contact addresses are at the the “Sponsoring organisation” for the TLD, the “General Post and Telecommunication Company” which is technically a private company which supplies a lot of Libyan infrastructure. The website’s not accessable right now, but apparently the chairman of the company is Muhammad al-Gaddafi, eldest son of Muammar, so its independence is unlikely to be real.
It’s true that bit.ly would buy a domain, and at some point the company who manages the domain registration will probably pay the government something, be it taxes or contracts, but it no more supports the government of Libya than buying a .co.uk or .com domain supports the invasion of iraq.
.ly is interesting as a country code, because while most countries operate a geographical restriction (‘you may not own a .fr domain if your company doesn’t exist in france’) .ly operates under the same restrictions of Libyan law (No porn, No gambling, pigs by appointment only) but doesn’t restrict internationally. For example, the domain “vb.ly”, released as a “sex positive URL shortener” got it’s renewal revoked after it launched. The .ly NIC system has always had an air of the stickytape-and-string about it.
Libya currently does not have unrestricted international internet access, and this works both ways.
.ly domains primary authority (as in, the central “What does this domain do” answering service) is cloned over five datacentres, two in Libya (currently on a “white list” though the great firewall of Libya) one in the netherlands and two in the states. Registering a .ly domain is currently difficult because the central database is not on that whitelist, but still possible.
Likelyhood of downtime
The ccTLD has been active in keeping .ly domains up during the political issues, including moving some of the authority outside the country, so the technical issues of contacting the domains are unlikely to be a problem. Poltically, it’s possible that the government may remove domains it finds offensive, but the logistics of doing that to every .ly site would not seem to be likely, especially since the people doing the checking don’t currently have access to the international internet.
Specific sites, such as bit.ly, may be in more danger if some red-taped official can’t tell the difference between a redirect and a host, but that would by why bit.ly owns both bitly.com and j.mp. You can replace the “bit.ly” bit of any bit.ly url with either of those to the same effect. (That does not stop links all over the internet from breaking, but it’s not a solvable problem, and one inherent in the shorturl concept. “Don’t use .ly” is fair enough, although if the US government did the same thing with bitly.com there’d be just as much recourse. “Don’t treat shorturls as historically achievable” is probably better, but articles on the internet are annoyingly transient anyway. If Cool URLS Don’t Change most of the internet is decidedly uncool).
I don’t own or admin any .ly domains anymore (and haven’t since I stopped working for Skimlinks on Good.ly (Still the only URL shortener with an accurate rendering of the current moon phase in the header)).