Kevin Rose just posted on the Digg blog to say that they can no longer stem the tide - the community just can't survive if all the members are at odds with the site's staff:
Having received a cease and desist asking to remove the code, it seems plausible that legal action will now be taken against Digg. And even if they avoid legal action in this instance, the fact is that the community now has the power to do whatever it wants, even if it's illegal.
We can expect to see many more codes and cracks posted to the site, making it almost inevitable that Digg will get sued eventually. But this is where it could get really interesting: if Digg does get sued (and it's likely), they can get every member to donate a few dollars to the legal fund. Digg users could also significantly affect the coverage of the story on the Internet and in the press, even swaying popular opinion. An opportunity in a crisis?