Having said that, the reason why it is controversial is a weakness of Ethereum, this idea of autonomy that they sold is biting them in the ass.
Very well put - and great summary overall. Exactly what I was thinking about "biting them in the ass". (Well, "me" in the ass as well cos I have a few Ether floating around LoL, though I didn't invest in the DAO cos something like this was about as predictable as a storm in winter).
I saw it the other way from you though - I thought the only right thing to do was to not fork since the principles of isolating the rest of the network from the logic of any particular DAP were paramount and by forking you would be breaking something that has actually worked, since the failure resides wholly within the logic of the DAO code (which I think is written in Solidity). Thats where the risk should stay as well (and will stay unless they fork the entire Ethereum blockchain).
However, you're taking more humanitarian view which may be a more grown up approach right enough. i.e. "just give the people their money since the whole thing's f*cked anyway and it'll minimise the misery".
The problem with that is that if you break those underlying principles of a scripting platform blockchain (isolation of logic and risk) their "money" might not be worth anything anyway.
Massive catch 22.
I agree, the hard fork option has a few drawbacks. The biggest is the fact that you are bailing out one DAO, so how do you justify failure to bail out other DAOs in the future? You are setting a precedent, which leads to moral hazard (same as the banks in the U.S.), or you are acting unfairly to future DAOs that have problems.
You also have a very, very serious conflict of interest problem. Many of the original (and current) Ethereum devs are clesely tied to (or heavily invested in) theDAO. Tual was one of the founding members of the project, and even though he left last year, it still looks like favoritism to bail out his project. Even worse, in an attempt to show confidence and solidarity, Vitalik announced that he's purchased some theDAO tokens himself! No he is no longer impartial and unbiased--he has skin in the game and it's in his best interest for a hard fork to occur.
Moral hazard is a very powerful thing, as is the appearance of impropriety. Both can have very long tails.