Private companies are investing some funds into stem cell research (certainly very large sums) but nothing like the NIH can in terms of dollars. Also, there are the dilemmas of private companies not sharing their advances, whereas government funded researchers have to make their findings public, which is what the whole scientific process is built on, peer review, demonstrating that results can be replicated, and others taking your work into new directions.
There can be governemnt funded research, it just has to be done on "approved lines" which have turned out to be in far shorter supply/less robust than claimed when W announced his ban on new funding.
This has pushed many of the best researchers overseas- the one example I know of at my instiution is Dr Catherine Verfaille leaving to return to her native blegium, which happened after the funding freeze.
As to the new technique of extracting stem cells from skin- its promising, but it needs to stand the test of time, and replicability, and even then its not clear if stem cells derived from skin, embryos, or other sources will prove to be the most useful. Its still very early in the field, so to predict which source is going to be the best is pure speculation.