Wired has a great rundown of what happened and the implications of the revolt:
Digg founder Kevin Rose’s decision this week to bow to the unyielding demands of his site’s members — rather than the unyielding demands of copyright law — sets the stage for a bet-the-company legal battle between the popular social-networking news site and Hollywood.
After initially complying with a cease-and-desist order to remove posts citing the encryption key for the HD DVD format, the site was deluged with protests and Rose quickly reversed course. But the outpouring of nerd outrage has continued, and Digg has suddenly found itself leading the charge against the full might of the movie studios, even as it fends off sellout charges from its own members. (For the latest news on the great Digg/HD DVD fight, check the Epicenter blog.)
The battle highlights both the futility of digital rights management, or DRM, schemes espoused by movie studios as a bulwark against piracy, and the divided allegiances of geek insider community sites like Digg, which stand to lose as much by alienating giant media companies as they do by bowing to their demands, particularly in the hot-button arena of copyright law.