If this story is true, and Jason seems to think it is, then trust in Digg will be undermined for a good while. While I don't know that it as quite as dire as Jason suggests :) the point that trust is hard earned and easily lost is certainly true.
The other piece that kills me is that it's a PR firm that is doing this. Man, talk about a self inflicted image hit. I will say this: It's not Waggener Edstrom.