I disagree about the Hugos being hidebound, though - look at the last three years, with The City and the City, The Graveyard Book, and The Yiddish Policemen's Union all winning - none of which are conventional science fiction at all.
Okay, let's turn down the rhetoric a couple of notches. There are two aspects to this -
1) This does not appear to be a case where the publisher just "changed their minds." 1984 and Animal Farm are, through the usual idiocy, under copyright in the US but not in other countries, so someone re-publishing the text without paying the copyright licensing is breaking the law, and Kindle customers have, in effect, been sold "stolen" property. (Equivalent: buying software that illegally includes GPL code). If you buy a stolen ipod, it can get confiscated by the police.
2) However, this does reveal a pretty worrying tendency to kill books first, clarify later. If Amazon had just sent out refunds, plus notes that "Due to an oversight, if you are in the U.S., this version of 1984 is unauthorized," that would have seemed sensible.
My suggestion - use the Kindle if you like (I love mine), but backup your books, strip the DRM, and pirate shamelessly. Casual piracy adds features to ebooks - the ability to lend and trade books, which is how we all got hooked in the first place.
This is part of the Gates Foundation's system of high-risk, high-reward research: take the smartest people you know, ask them to come up with crazy ideas, and see if any of them work. This one did. And though Lowell Wood gets credit for the initial idea, the laser scientists "...teamed with an entomologist with a Ph.D in mosquito behavior and other experts."
Lowell Wood is known for coming up with creative solutions to big problems - he might be a little crazy, but it's the kind of crazy we need to make sure we keep on trying new ideas.
I recently subscribed to Analog. I started every story in the first issue, and only one was worth finishing. Most either failed to 1) have believable, interesting characters, or 2) realize that new words are not new ideas.
But that doesn't mean science fiction is dead - read the Hugo-winners and noms. Books like Rainbows End (Vernor Vinge) and Spin (Robert Charles Wilson) have restored my faith in the genre. Maybe I'll give Analog another chance, but right now there are too many good novels out there.
The moving cursor writes, and having written, blinks on.