[MaggieScratch]

This is an unfortunate situation and I would be angry if I were one of those affected. However, looking at it from a pragmatic point of view, I can understand why Amazon deleted the files from users' Kindles: because they can. If they were Fictionwise or BoB, just selling books and not having that two-way access to their users' devices, they could just remove the books from sale and be done with it. But since they DO have access to their users' devices, to fully indemnify themselves they probably felt it necessary to remove the book from the users' devices as well and refund the purchase price. It will look better for them if there is litigation; they can say they took every action they were capable of to respect the copyright holder's rights. They were being risk-averse.*

That being said, I don't think it's a "huge blow" to the Kindle. This situation affected a relatively small group of users. The majority will continue to enjoy the ease of use of Whispernet and never even think about it. If they deleted, say, The Da Vinci Code or some other popular bestseller, there would be an uproar, I dare say.

*Disclaimer: I am not a lawyer, I just make websites for them.