All around, that was a pretty good video and critique.
One thing that I've always found odd (and frustrating) about Objectivists, is the fact that think they can define "happiness". To me, "happiness" is a pretty darn elusive, dubious, and nebulous concept. I'm very skeptical of the idea that such a concept can be nailed down and used as the corner stone of a logical structure.
And what does he mean when he says that happiness is cognition, and not sensation? I'm not sure we can make that kind of arbitrary distinction, or even that it's helpful or meaningful to try.
"Happiness" just seems like one of those nice, fuzzy concepts that short circuits the brain, and rather than acting as a logical connector, cheats by acting as an emotional substitute.