The issue gets murky in terms of public perception because of some comments made by the guild leader which became public. The guild leader allegedly said, "I want to defend us, but I also want to defend the pedosexual community." The key point here is that the guild leader is talking about pedophiles who don't actually molest children -- the thought isn't illegal, the real-life action is. So are people who engage in that fantasy while roleplaying in WoW (while in private chat with a consenting individual) doing something wrong? Of course, this is an extreme example.
There are also issues about age verification for the erotic guild. Many general-purpose guilds have age guidelines set up for the comfort of their members. It's also easy to argue parents should be doing their jobs and monitoring their child's online activity and who they associate with. This whole issue is full of deep social and sexual questions, but in the end it is Blizzard's game. We're not expecting the World of Warcraft sexual revolution anytime soon.
And because we couldn't resist, (it's an oldie but a goodie as) WoW meets porn and Broadway after the break.