Story hiding has slightly weird semantics even when it's working correctly. I think I'm sold on comment hiding (I was a skeptic), but I'd be a vote in favor of punting story hiding.
I think the problem isn't the feature, so much as the unintuitive way the user interface is implemented. The link to unhide items could show up in the top bar (maybe next to the username) instead of yet another link in the users' profile, and give some visual prompt (maybe with a counter or something) telling the user that there's a relationship between one action and the other.
It's an argument for not letting simplicity get in the way of functionality, and designing the interface around the actual usage of the site. Hiding the added complexity of the new features and hoping people just figure it out doesn't keep things elegant.
Although I suppose it's also an argument for having the unhide link in the user profile be a bit more obvious somehow. Either way, it seems like a UI problem, for which the solution may be to either deal with the complaints in order to keep things simple, or else to change the UI to be more intuitive.
I suggest moving things to the top bar because I'm assuming people pay far more attention to it than they do their profiles.
Can we have an option to hide hidden stories, default to no, otherwise keeps it where it is but have it faded (also add an unhide right there). Or would that be too convoluted?
Why not go the way a lot of modern web apps are going, once you've pressed hide on the story, just have a 'undo' button that disappears after 5-10 seconds.