I sort of touched on this issue for one my recent answers on Quora, but basically a domain name shouldn’t dictate what the name of your startup should be.
Godaddy recently made .CO the default for new domain names. Of course part of the reason they did this is because they make more money off the $30 premium for new .COs. But it’s becoming more and more clear that .CO is the new alternative to .COM.
So with this new availability of domains, there’s no excuse for you to not find a decent domain for your startup. I would much rather see you use a name like MyStartup.co, or even MyStartupApp.co, instead of using some stupid exotic domain ending like .LY or .WS.
It surprises me how many people argue that visitors may accidentally type in .COM instead of .CO, and then they go on to name their company something weird by dropping vowels (like MyCmpny.com or LtstTrnds.com). My guess is that those types of names will be mis-spelled a lot more. But either way, any returning visitor would be able to recognize if they made a typo mistake or not. And for new visitors, it really doesn’t matter because your online advertising will link directly to your site or they’ll just find you through google.
Just make it easy on yourself and your customers and go with a .COM or .CO.