I just asked Dave about it, who is the one who informed me of the situation in the first place. He said:

"I'd heard the whole thing was just an oversight. Apparently Yahoo
purhased Geocities, and it was Yahoo that had the draconian policy, which
was mainly for their forum posts and stuff. They didn't realize that it
now applied to all web pages on Geocities (and how incredibly
innapropriate that was) until everyone got up in arms about it. So I
guess some good came of the whole thing after all."