I'm not sure what this guy was doing. If he was sanitizing movies, charging a small premium and sending the full price minus the premium to the studios, I'm okay with it. If he wasn't sending funds back to the source, I do think it's problematic.
The idea of sanitizing need not be limited to the likability of the producer or actors. It has to do with some people simply not wanted to have children's or adult movies loaded with improper content. I'm not trying to say that the adult stuff is improper, but some folks just don't care to hear non-stop vulgarity and sex scenes.
It seems to me that the studios would do well to sanitize movies on their own, but they won't. It reduces their cash take considerably, but it's their choice.
That's why I don't (and I think the courts don't) have a problem with companies that make hardware to "mute" or otherwise suppress objectionable scenes or language in movies. They are not altering the content on the disc at all, just how it is perceived on the viewer end.