This is an attempt to briefly summarize what's going on at LiveJournal. Basically, two LiveJournal users got permanently banned (with no warning) for posting ponographic drawings of Harry Potter characters. Now, LiveJournal claimed (though not publicly) they were child porn, but the people in the drawings aren't obviously under 18 and the people in question didn't claim that they were. Unfortunately for Livejournal, one of the users in question was fairly well-known.
While LiveJournal probably didn't expect quite the backlash they got, they obviously expected some, so a few hours beforehand they rolled out some changes to the handling of banned users. There's a standard way of linking to other users - the "lj user" tag - and it used to show suspended or deleted users with their names struck through. They removed the strikeout, the link, and the icon identifing it as a link to another user, making it harder to spot when someone had been banned. In addition, they modified the code for journal profile pages to that these users no longer appeared under the friends/members lists except on the logged-in user's own profile.
However, there's also some interesting history to this. On the 20th of June (in the aftermath of the previous, bodged set of bannings) Livejournal made certain reassurances about their policy. This was shortly before a permanent account sale in which people could pay $150 for extra features, good for the life of their account (this option is not generally available). I think one of the two banned users was gifted a permanent account during this sale.
It therefore came as a surprise when, in mid-July, Livejournal posted this "clarification". Note the initial ban on "or other material -- including drawings and text -- that explicitly depicts minors under the age of 18 (real or not) in a graphic sexual context". This was an issue for many fanfiction writers and the like, and flew in the face of LiveJournal's June reassurances relating to fanfiction. (If you can't see why many Livejournal users would write this sort of stuff, think about their age and general nature for a bit.) After someone pointed out that US law didn't say what they claimed it did, they added that this would only apply to "obscene" works. However, it became clear that their definition of "obscene" was worrinigly broad (and, though IANAL, I suspect it's siginificantly broader than what the courts would be willing to find obscene).
The other two categories of banned activies were also subtly but significantly broadened. For example, note the difference between "No content which is meant to plan, solicit the commission of, seek customers for, or provide instructions for serious illegal activities which could cause harm to others" and the "Material that asks for assistance in committing illegal activities that cause serious physical/economic harm to others" clause. The latter makes it much easier to ban users for saying how to install libdvdcss, for example.