This is clearly a form of censorship, but it's not an illegal one. Amazon has a right to choose what they carry in their stores, just as any other store does.
There is a worse form of censorship happening in our schools that very few people seem to be aware of. I discovered this when my daughters collaborated to write a book. They are in first and third grade, and when the box of newly printed books arrived, they proudly tried to donate several copies to the school library. The school rejected them.
It was not because of content. The librarian and some teachers all read the book and thought it was fine, and a great example of accomplishment for the other kids. It was not because of price -- we were donating the books. The problem is, the school district only allows books from a specific set of publishers, and since this book was self-published, it could not be allowed in the school. I inquired about the publishers, and there were only three on the list (Scholastic being one, and I'm sorry don't recall the other two.)
Essentially, the schools don't have to censor anymore, they have outsourced that function to a few trusted publishers. In our case, this is a district-wide policy, other districts might be different.
I have a busy life and didn't have the time to become an activist for open libraries in the schools (but I truly wish I could). Instead, I managed to get the kids' book on Amazon and B&N (although not in an e-book format -- It's a picture book that doesn't migrate well to those devices.)
Regarding Kindles, distributors and censorship - the device is not totally dependent on the e-store. I have versions of my daughters' book on my own kindle and in Ibooks too. The formats for publishing on those devices is pretty well known (epub. mobi, pdf, etc.) Distribution is the problem, but only for the technically challenged who can't be bothered to manually transfer the title onto their device - even when it's as simple as sending an email (a service Amazon provides for their Kindles -- it's a slightly bigger challenge for iBooks, but only slightly. I don't have a Nook...)
But I can't hack into my kids' library so easily -- other than to provide books at home for them too. Is there a better solution to this problem? Ultimately, I don't think so. Does anyone have a different opinion?