Greg Costikyan has some good analysis of the game and the hubbub surrounding it. I know Jon Blow (creater of Braid) from college, and it doesn't really surprise me that he'd want to start a protest over this (and I think he's right to do it).
I think removing a game that is terribly PC and in poor taste is fine, but you're right that waiting till the game's made the finals is not. It sounds like they caved to political pressure. It sounds like they need to put something into their rules to clarify or have a screening process if they don't want a game like this in the competition.
EA or Vivendi or any of the major publishers would never touch a game styled after Columbine, but I haven't heard of a move to boycott them, either. I understand this is an open contest, so it's not quite the same thing as the greenlighting process for a major publisher, but it is similar. And with so few outlets for indepentant games, I for one am willing to give a little extra lattitude to the people that are trying to promote indy games. I wonder if expecting Slamdance to promote independant games and expecting them to be uncompromising free speech fanatics at the same time is expecting too much. I doubt the gamer community expects major publishers to be free speech fanatics, so why apply a double standard
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