There has been much discussion on whether this is legal. IANAL, but I suspect it is not and Sony will be forced to either provide compensation (e.g. Playstation Store credits) or re-enable OtherOS.
Personally, I have not installed OtherOS, although I have looked at it. Although I didn't find any compelling reason to install Linux, my main reasons for not installing was mostly PITA and WAF. So although this change doesn't impact me today, it does remove a feature which was of value to me.
Although I don't agree with the decision, I can understand why Sony did it. Linux was being used to break out of the walled garden which Sony had created for OtherOS, creating the possibility OtherOS could be used for various forms of piracy. Removing OtherOS removes this path, making piracy much harder.
However, I'm sure this is only a temporary setback. The ability to run Linux has been put forth as a kind of "pressure release" for the hacker community. Since the PS3 could run Linux, there was little reason to hack the PS3 as one of the primary reasons to hack a console (e.g. Wii, Xbox 360) is to run Linux. There could also be a substantial backlash, causing a larger number of hackers to focus on the PS3.
This action also ignores the large number of legitimate PS3 Linux users who will be forced to make a decision between PS3 Linux and PSN. For the pure HPC users this probably won't have an immediate impact, but home users will probably learn very quickly that they cannot do without PSN.
From a broader perspective, this shows how little control a consumer has over anything which is dependent on the network for functionality.



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The new digital video standards allow full control about the user. E.g. here in Germany, the private networks plan to prohibit skipping advertising blocks when transmitting with the new HD+ standard. Timeshift and recording will still work, but you are forced to watch the advertising too. What's next? Will they ask you control questions about the advertising to let you continue watching?
I really hope this will backfire at them and nobody buys those HD+ recorders.