Angry Twitter Users (paraphrased): "We are a community. You need to enforce your TOS and boot out the assholes.
Twitter (paraphrased): "We are not really a community - we are a communication tool like the phone or email. Moderating content doesn't scale. If somebody's mean to you on the phone, you're not going to complain to the phone company, are you? We are revisiting our TOS to make sure it is scalable."
I get Twitter's point here. It's a dangerous precedent for a small company with meteoric UGC growth to say that they will go in to protect users from being mean to each other. However, when dealing with angry users, rigidity can be a dangerous thing and there's no room for idealogues - especially when your TOS does not reflect your ideology. My advice to Twitter? Apologize for the mishandling of the Ariel case and change the TOS so there is no misunderstanding.
If anything, this flap offers a fascinating glimpse into just how big Twitter's aspirations are. They don't want to be a community - even a very, very big community. Flickr's TOS (which Twitter's was modeled off of) no longer makes sense to them. They want to be communications infrastructure - like the phone, the fax, and email.
See more on VentureBeat and Mashable.

