I suspect, as others have said, that this was a bright idea by someone high up in the corporation, someone who looks at it purely financially, in much the same way that assorted financial folks created the various financial products that messed with the mortgage market. If the only goal is to bring in money, and they don't care who they get it from, then it makes sense (subject to the brand dilution issue, which they may have miscalculated, thinking it wasn't a real issue, b/c readers would never know about it).
So, they went and signed a contract with the provider of the printing services, and they're stuck with it now. The provider presumably paid money for the use of Harlequin's name, and the contract presumably requires Harlequin to use their name in certain circumstances, ergo the double-speak about it being a Harlequin, but not really.
I wonder what the editors in the trenches -- the ones who deal with authors every day -- are thinking. I'm sure this was dumped on them (as it was on Malle Vallik, who's really a quite nice and generous and caring person, from what I've seen of her at conferences), and it sounds like they're going to be forced to include the referral in their rejection letters (probably in the contract), and I'm guessing that it's painful for them.
Meanwhile, I worry about the likely customers. We all know that it's not the savvy business person, the one studies the business and makes a clear-eyed decision. I worry about the effect of this endeavor on delusional authors, the ones who have some true mental illness. We've all seen those train wrecks -- authors who believe they have a bestseller, even though they have no plot, can't write a coherent sentence and haven't met a punctuation mark they're willing to use. They're going to get the standard rejection letter, with the referral, and see it as their golden opportunity. A year or two later, they'll be angry that they haven't hit any bestseller lists, and they'll have spent their life's savings. Or have borrowed their family/friend's life's savings and be unable to pay it back. And then there are the authors with great potential, who aren't quite there yet and need to write a new manuscript that WOULD sell to a "real" Harlequin line, or perhaps just aren't writing category stories, and their stories would be snapped up by Avon or Kensington or Bantam or Pocket. And yet, they would both get referrals to the vanity press, which would waste time and money, and then be so demoralizing that they give up.
This is a hard enough business, by its very nature (the creativity and subjectivity that goes along with any artistic endeavor), that writers don't need any unnecessary hurdles to jump.
JD