Does the story actually says the Superhappies really know humanity's utility function better? As in, does an omniscient narrator tell it, or is it a Superhappy or one of the crew that says this? That changes a lot, to me. Of course the Superhappies would believe they know our utility function better than we do. Just like how the humans assumed they knew what was better for the Babyeaters.

Similarly, the Superhappies are moral, for their idea of morality. They were perfectly willing to use force (not physical, but force nonetheless) to encourage humans to see their point of view. They threatened humanity and were willing to forcibly change human children, even if the adults could continue to feel pain. While humans also employs threats and force to change behavior, in most cases we would be hard-pressed to call that "moral."

From a meta-perspective, I'd findit odd if Yudkowsky wrote it like that. He's not careless enough to make that mistake and as far as I know, he thinks humanity's utility function goes beyond mere bliss.

The only way I think you could see the Superhappies' solution as acceptable if you don't think jokes or fiction (or other sort of arts involving "deception") are something humans would value as part of their utility function. Which I personally would find very hard to understand.

My feeling is that many utility functions in the general class of utility functions that the super happy's is drawn from would lie about how advantageous it is to merge. Weren't the humans going to lie to the babyeaters?

I think what the "true" (status-quo) ending proves is that the Super-Happies did not accurately model humanity's utility function at all. If they had, they would have proposed a deal where humanity gets rid of most of its pain, but still keeps some, especially those "grim" things that humans actually like (somewhat counter-intuitively). (And perhaps the Babyeaters' thing would then be understood as one of these "grim" things by humans, as it clearly is for the Babyeaters themselves It's not clear if the Superhappies would be willing to acquire this value, though). This is a deal that humans would indeed accept, since it agrees with their values. I think the true moral of this story is that getting human wants right for something like CEV is a hard problem, and making even small mistakes can have big consequences.

But it's still a compromise. Is it part of humanity's utility function to value another species' utility function to such an extent that they would accept the tradeoff of changing humanity's utility function to preserve as much of the other species' utility function?

I don't recall any mention of humanity being total utilitarians in the story. Neither did the compromise made by the superhappies strike me as being better for all parties than their original values were, for each of them.

The only reason the compromise was supposed to be beneficial is because the three species made contact and couldn't easily coexist together from that point on. Also, because the superhappies were the stronger force and could therefore easily enforce their own solution. Cutting off the link removes those assumptions, and allows each species to preserve its utility function, which I assume they have a preference for, at least humans and baby-eaters.

they are moral and wouldn't offer a deal unless it was beneficial according to both utility functions being merged (not just according to their value of happiness).

I guess whether it is beneficial or not depends on what you compare to? They say,

he obvious starting point upon which to build further negotiations, is to combine and compromise the utility functions of the three species until we mutually satisfice, providing compensation for all changes demanded.

So they are aiming for satisficing rather than maximizing utility: according to all three before-the-change moralities, the post-change state of affairs should be acceptable, but not necessarily optimal. Consider these possibilities:

1) Baby-eaters are modified to no longer eat sentient babies; humans are unchanged; Superhappies like art.

2) Baby-eaters are modified to no longer eat sentient babies; humans are pain-free and eat babies; Superhappies like art.

3) Baby-eaters, humans, and Superhappies are all unchanged.

I think the intention of the author is that, according to pre-change human morality, (1) is the optimal choice, (2) is bad but acceptable, and (3) is unacceptable. The superhappies in the story claim that (2) is the only alternative that is acceptable to all three pre-change moralities. So the super-happy ending is beneficial in the sense that it avoids (3), but it's a "bad" ending because it fails to get (1).