They're designed to make it harder for advertisers to track your activities or employers to know whether you're visiting Facebook or ESPN during the workday.
More extreme services are designed for dissidents in authoritarian countries who want to read unbiased news about their own countries without being arrested for it.
Hidemyass is not one of those hard-core services.
Harder-core hackers or others looking for more certain anonymity often use zombie machines on botnets created by malware and other proxies over whose recordkeeping and vulnerability they have more control.
That makes tracking an attack difficult for law enforcement forensic investigators, who might backtrack an attack to a bank of servers at a university or shared PC at a library – neither of which has any record of where the traffic originated or who controlled it.
Hidemyass is only one of several VPN services LulzSec'ers mentioned in IRC chat logs posted by anti-LulzSec hackers like Web Ninjas, who wanted to expose the Lulz as poseurs and punks.
It's possible the awareness of their vulnerability was so shallow among LulzSec'ers in general that Kretsinger's flub wasn't unusual, but I kind of doubt it.
Much more likely he was among the second- or third-tier joiners who either copycatted on their own or jumped on the LulzSec hackwagon because it looked like a good way to build up a wild rep without having to pick targets and figure out all the exploits on your own.
Unfortunately, whatever Kretsinger was up to (the FBI has been wrong in its accusations before), or how much he knew about how to use a certain set of tools and exploits, he didn't know enough about how to hide his tracks to keep the feds from knocking on the door.
When you're trying to hack the highest-profile players you can find, building a reputation by crashing the biggest parties, insulting the most important people and getting away again before they can respond, leaving a trail of footprints back to your place is not the best way to ensure you get a chance to ever crash a second party.
LulzSec'ers said throughout their very public reign of idiocy that they were in it for the lulz, the laughs, the excitement and to provide entertainment to the masses.
The FBI isn't in anything for the laughs. The FBI has no sense of humor as far as the MIB know.
When you make jokes that embarrass the FBI, it tries to find you. And it keeps trying long after you think the joke's over.