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Definitely a PR mess, but I think the legality is unknown. It will be interesting to see if anyone actually goes to the courts about the contract locking issue. It's a lot of effort, when the affected parties would probably be better off selling their iPhones and switching to a Neo1973.
I can't imagine buying a device this capable that I couldn't load 3rd party applications onto. If I had been crazy enough to do so and then had used hacks to add software on anyway, I wouldn't use an update until I knew additional hacks would let me keep using my 3rd party apps.
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