Google continue their slide into being just as evil as every other gatekeeping corporation.
I personally don't see complying with demands to avoid an expensive lawsuit to be "evil".
It's pretty evil not to have told the developer in advance to stop. It's pretty evil to claim that you are running an open market (openly mocking Apple who police their app store) and yet demonstrably not be running an open market. It's pretty evil to pull the developers account as well as his apps.
Look: if Sony/Sega/Nintendo had a problem with the developer they should have to take it up with the developer. Instead they just wave their corporate muscle and Google instantly caves. There has been no court case to decide if what was being done was truly illegal, and nor will their be. We don't need courts any more, we've got Google.
Avoiding lawsuits is sensible enough from Google's point of view; but let's not pretend that that makes Google "good". It's not the caving that I decry, it's the caving while at the same time using a "we're so cool, we would never limit you, not like that evil Apple company" marketing strategy. At least Apple are honest about their strict policing policies.