Dear Mr. Newell,
Obviously you are a smart man, and even I have forgiven you for ignoring the PS3 for a long while, (I still prefer TF2, and other Valve-related goodies on my PC though). Please show your further intelligence by pointing out the flaws in the (dis)honorable Mr. Thompson's letter.
Terroristic threats, even vague ones, against your company is punishable under Federal Law. This is first and foremost the problem here.
Mr. Thompson's position of 'power' (snicker) has been removed, and has no right whatsoever to force you to shy away from what you are doing. Mr. Thompson needs to be reminded that the Source Graphical Engine is distributed, and a third party company may use for it what it chooses, but in the end, it is Valve that controls distribution on the Steam Network. Additionally, you may need to understand, that Mr. Thompson may NEVER win this battle. While I find the game lacking taste, morality, etc, etc, outright banning it after his letter was published will award him a false sense of victory over the industry you have shaken up, and contributed blood, sweat, and tears to ensure continued success.
For those victories, I thank you, and you will be happy to know, I have (purchased) contributed over $500 dollars of my money to continue owning games legally through Steam. I back you, and the industry that has entertained me since I was in diapers with whatever decision you make. But know this, if he assumes victory here, and other activists (extremists?) witness what looks like a victory for him...you can bet it will be a gateway for others to attempt as well.
Keep doing what you are doing Mr. Newell, even though this letter may never leave the pages of the Escapist, to forever be lost in the sea of OMGWTFBBQ!?! comments it shall receive.
Very respectfully,
Gamers everywhere