Yes the did. If you don't update you lose network/market access. *** is the point of a modern gaming console without network access? None.
No matter how you base this around the false guise of "piracy is killing everything", the simple truth is Sony is putting all of their resources and work into the wrong thing.
When Sony stumbles onto a massive PS3 game piracy ring -- by all means sue. But a dude who does this as a hobby for fun -- don't be ridiculous. From the rest of your comments it appears you have some in at Sony or monthly stipend. People who actually care about THEIR legally purchased goods don't take it too kindly when companies such as Sony walk all over them as they are doing to Geohot.
And less people care about the "piracy is killing everything" topic than you think. This isn't just about piracy, it's about privacy and the ability to use the console as intended... but you didn't read that far did you? You don't care about the other people that want to use it legitamately, you'd rather an exploit be out there to damage gameplay and create phishing opportunities. Good job!
And Geohot was looking for money by trying to get a job for Sony for this exploit. He then released it publicly when they told him to eff off. And whether or not the DMCA is wrong or not in your eyes, it's still law.