You have posed an interesting question. I do not think that it can be answered with only the two available choices. I believe that there has to be a middle ground between the two. I do not believe that youth sports should be about winning at all costs. However, winning and losing is an important part of participating in youth sports.
Youth sports should fill a number of functions. It should serve as an opportunity for kids to exercise, learn the rules and fundamentals of the game, and to have fun. It should also be an opportunity to learn life lessons. Among those are sportsmanship and teamwork in which a child learns how to work with others and how to behave responsibly. Another life lesson that youth sports can, and should, teach is that in life you don't always get what you want. As an adult, you don't always get the dream job or dream house. By losing a few games in youth sports, you learn that lesson and you can learn how to deal with it. You can also learn that if you work harder, you have a much better chance of winning the next game or of making that job you get as an adult just as rewarding as the "dream job."
Having said all of that, yes, I do believe that winning and losing is important, but it is not the only thing that is important. If only we could convince everyone of that.