These satellites would be in LEO
Sort of. They'd be in probably lowish sun synchronous dawn-dusk orbits, a narrow band following the terminator where the sun always shines.
and fall back to Earth after 5 years anyway.
Yeah. Thus "you generally need to rebuild your entire infrastructure... every five years or so."
The server hardware will be obsolete by then anyway.
The server hardware maybe. Not the power plant, (extensive) cooling hardware, infrastructure. These aren't GPUs floating in space, they're the entire computing, communications, cooling, power etc. infrastructure. The every five years thing would be like building a datacentre and everything supporting it in the middle of the desert and then nuking it every five years and starting over from absolute scratch.
If the cost to orbit is low enough, and there are no land taxes or electricity costs in space, and it solves the locality and latency issues for them, it starts to make more sense.
The cost to orbit, whatever it is, is pretty much money on top of whatever it would cost to build in a remote location on the surface. Taxes are minimal, zero or sometimes effectively negative for remote development on Earth. If you want to build a datacentre in the middle of the Sahara you can probably convince Morocco or someone to give you money. Solar panels are bit more efficient in space, and you get to use the 24 hours a day, but you also have to toss them every five years and buy (and launch) new ones. Along with everything else. And latency is going to be worse, not better. Your servers are whipping around the planet in polar orbits on the terminator. The minimum distance they are from any point on the surface is going to be about 300 km and that's going to occur for a few minutes a couple times a day. Most of the time they're going to be half the planet away.
I watched Scott Manley's video when it came out. He's right, the technical issues everyone seems to focus on aren't great, but they really aren't that bad. The economic and latency issues are the killers.