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If Amazon were a traditional publisher, Selena submitted a manuscript to them, and they rejected it, I don't think that anyone would really complain that this was unfair, that it was censorship (although in a way it certainly is), or that the publisher needs to have and follow a policy describing what books it will accept or reject for publication.
Amazon is not a traditional publisher, though. Amazon accepts, by default, everything (except maybe certain PD books) for publication, but reserves the right to retroactively reject books for publication. This approach allows Amazon to publish far more books than it would if it had to sift through every book before allowing it to be published, which would negatively affect all books, just to stop the .001% that Amazon would prefer not to publish.
It looks like Amazon does specify that it reserves the right to reject books, and it doesn't seem like this is any more unfair than traditional publishers rejecting a book before publishing it: in both cases the writer has already done the work of writing the book.
It is unfortunate that Amazon's "permit first, reject later" policy causes some authors to believe that they have a right to be published on Amazon after Amazon has allowed their books to be sold. But this is not the case, and it's unfortunate that people seem to believe this. Amazon rejecting a self published book retroactively is not much different from a publisher rejecting a book prospectively, except that you at least have the advantage of some sales, some publicity, and the ability to put "Too Hot for Amazon!!" your book's description.
Except in unusual circumstances, though, Amazon should send purchasers of a banned book an e-mail notifying them of the fact and giving them some time period (maybe 30 days) to download the book from the archives if it's not kept on the device.
I do think that Amazon is being pulled both ways on this: when they didn't immediately ban the non-erotic pedophile book, they were pummeled by some readers; when they pull an erotic incest book, they are pummeled by others. So there's nothing they can do that will please everyone. But I suppose this does create market niches for cleanbooksdotcom or dirtybooksdotcom. And there's something to be said for that.
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