Bob Odenkirk pulled it off so well. Brilliantly acted. It really is the scene that summed up the entire series. A direct parallel to Chief Bell's scene in the diner from No Country For Old Men. Perfectly Cohen-esque.

After looking up the meaning of "Morton's Fork" the episode makes a little more sense to me now.

A Morton's Fork is a specious piece of reasoning in which contradictory arguments lead to the same (unpleasant) conclusion.

Lester's situation and Molly's parable were the Morton's fork. The unavoidable unpleasant conclusion was that Lester was fucked. Although it would not have saved him from a lifetime in prison, Lester could have done the right thing and given himself up for the greater good of getting Malvo taken down, but he decided not to throw out the other glove. In the end, no matter what he does, he's on thin ice and the cracks will form around him. His (and Malvo's) fault was daring to wonder "What if you're right and they're wrong?"