The last line really helped me see where you are coming from: You take the expectation of the utility of the money, not the utility of the expectation of the money.

However, at http://lesswrong.com/lw/hl/lotteries_a_waste_of_hope/, you argue against playing the lotto because the utility of the expectation itself is very bad. Now granted, the expectation of the utility is also not great, but let's say the lotto offered enough of a jackpot (with the same long odds) to offer an appropriate expectation of utility. Wouldn't you still be arguing that it is a "hope sink", thus focusing on the utility of the expectation?