Fair use is far less shapeless than Wu suggests. The starting point for fair use ought to be "what does the law say?" 17 USC 107 does not just adopt Story's principles; it sets out four factors to be considered:
(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work.
The big one that weighs against Fairey, and which Wu omits from his article, is the commercial nature of his work. He didn't use the AP photo for art school; he used it for personal profit. That's not dispositive in itself; as Wu notes, the 2 Live Crew case found fair use in spite of the commercial purpose, because the other factors weighed that way. But Fairey's case is a lot tougher than 2 Live Crew's, it seems to me. 2 Live Crew only used a small portion of the original song, while Fairey recapitulates almost all of the AP photo. They produced a rap that sold in a very different market, while the AP probably has a decent argument that its photo was sufficiently iconic that it could have been the subject of T-shirts and posters that instead went to Fairey's image. The nature of the original work is mixed here; the AP photo is neither wholly factual nor wholly artistic.
I don't think Fairey's case is frivolous by any means; there are many good arguments that he can make. But I do think that the legal analysis is much simpler and much more tilted against Fairey than Wu suggests.
Additionally, I think Wu gets the law wrong regarding the Abu Ghraib photo. There's no fair use issue with regard to that photograph because the law expressly states that works produced by US Government employees in the course of their duties are not copyrighted.
Moreover, I don't think it's correct to say that there is a blanket fair use exception for news reporting; the Supreme Court, in the 2 Live Crew case, gently mocked that notion. Indeed, the primary way the AP makes money is in selling its news reporting, as I understand it.