You know, honestly, I'd go with the career destruction and release of Muhammad Hassan.
Muhammad Hassan was becoming one of the best foreign heels, even, I daresay, one of the best heels, period, ever. He was hated like a bastard, which is to be expected, considering the attitude toward terrorists and his huge anti-America attitude. Yeah, it's a form of cheap heat, but damn it, he did it well. Furthermore, he had a fantastic look and was very strong in the ring. He was a fantastic midcard talent and, at the time of his release, just begging to be unleashed on the main event.
The angle that caused his eventual demise was actually fantastic. Terrorists attacking and beating down the Undertaker, a beloved face, was just golden. Copani came out and looked like a legit main event beast, and he was about to step into the limelight.
This, of course, is where things went wrong.
At the same time this aired, the London bombings had just occurred, and with this fresh in mind, a terrorist attack occurs on entertainment TV. This, of course, led to a media backlash, and UPN saying that wanted to downplay Hassan. This led to Hassan's defeat at the hands of the Undertaker, and his effective burying. Had Hassan won that match, he'd have challenged Batista for the world's title...and who knows what would have happened. I think it's entirely possible that Hassan would have won the World Heavyweight Championship.
This was handled poorly in a number of respects, and there's several ways this could have been used to the advantage of Hassan, or at least done no harm to him.
Option #1 is using the negative attention as a wave to even bigger heat. If UPN had any balls, or Vince had the balls to tell UPN to stuff it and do things his way (which he almost certainly had the pull to do), they could have used this to turn Hassan into a humongous heel. Come out and shit all over the victims of the London bombings, say he was thankful they were all dead, that they deserved to burn in infidel hell, etc., etc. It would have been enormous heat, on an unprecedented level. It could have shot Hassan straight to the top.
Option #2 occurs if UPN really won't have any of it, and won't let Hassan on the show. Alright, so be it. Move him to Raw. It would have hurt his momentum, sure, but I guarantee he could have recovered. Here's how I would have set it up - start a midcard feud on Raw that involves a "Loser Leaves Raw" match, and when the loser leaves, Raw demands someone from SmackDown to make up for the loss. SmackDown sends over Hassan, glad to be rid of him. This of course leads to the problem of the Undertaker vs Hassan match, but it could have been ended easily with a DQ finish on Hassan's part, with him looking like a dominant heel, but Taker actually winning. Then, he goes to Raw, and gets things done over there, he was more than capable.
No, instead, Vince acted like a bitch and caved to UPN. He destroyed Hassan's career, and lost a man who could potentially have become one of the best heels ever, and who could still be around to this day, bringing excitement to a stale main event scene.
So, while Vince has made a number of mistakes, I'd have to rank this at very near the top. It's just so mind boggling that Vince could have allowed a talent like Hassan to slip through his fingers like that, without doing a damn thing to stop it.