That was the server fiasco. That's separate to the mod fiasco.
Yeah.
I don't know what the mod fiasco was, and I was around for the server fiasco.
TBH, I don't think there actually was a fiasco as such, more a damn retarded move that most people just accepted.
Well what the heck WAS it. I have absolutely no clue.
See my earlier post, as quoted by Putnam, but basically(I lie, it's really complicated), some big name minecraft mod authors started getting picky and finicky about who they wanted to work with. (In a lot of cases this was over ad revenue, but not in every case) My damaged memory suggests it was the Industrialcraft person/people that were one of the first if not the first real person to say "I don't want to associate with these people." But Flowerchild of Better than Wolves/Better than Starting Manned" fame also was a bit uppity about working with other people, but chose a sort of different path (refusing to use community libraries to make their mod compatible with other mods).
Because of this in community conflict, legal-esque licenses were put in place which basically said "You can't use my mod in a modpack without my permission." There was some back and forth over whether this was actually legal or not, as mods are by their nature, dealing with the Mojang owned codebase. Most of the time some of the code base is included within the mod. (The addition of forge, bukkit, and various other community lead mod APIs has muddied these waters a lot, and I"m not sure if it's still a valid argument or not.) When this code base is included with the mod, it should legally be counted as Mojang's property since it's still theirs, it's just a modification of their original product.
Getting to the important part here:
So... One argument would say because Mojang technically owns most mods by virtue of their code being contained therein, most mod makers have no legal right to negotiate licenses on their behalf nor to claim ownership over their property.
The other side of the coin is that mod makers have added significant value to the mojang codebase, and have worked hard, and a lot of the stuff is an original creation and mod makers should be able to control what they created.
There was a lot of waffling about this, and some Mojang staff even gave their unofficial opinion, but I don't think an official statement was ever put out by them covering this. I think they'd rather the community fight amongst themselves rather than a large chunk be mad at Mojang due to making a decision and enforcing something. (See the server fiasco which happened later which lends some credence to this theory)
Within the community a decision was made at some point by forum staff to heavily encourage mod makers to include a license with their mod pack. While this didn't finish the argument, it did help cut down on the intensity of the flames being spread and give people a place to point to and say "these are the rules, follow them".
Whether or not the rules are legal or justifiable is arguable, but they're the only solid rules anyone's put out, so people tend to go by them. And finally, because of the minecraft forum's central position within the community. Many of the moderators enforce people to play along with the various published licenses or else they will not allow non-compliant mod makers to advertise their mods on the forums. Which lends some power behind the word of law. You can't stop what people do in their own homes, but if they want any significant publicity they have to follow the rules.
So this is where we are. Licenses are de facto enforced by the community whether or not the world's legal systems would allow them to be or not.
TL;DR: Fear of losing popularity/money leads to anger by mod makers leads to hate at each other leads to suffering for the players.