One of the reasons we have an AUP is so that we can identify potential high risk clients. Content like pornography, aside from the moral implication, attracts a lot of malicious elements, and that is a huge reason why we just say no.
At the end of the day, everyone has a right to host their site, whether it's about your political views, your favourite kind of beer, or 101 ways to catch mice. No-one should be banned from hosting if they simply want to talk about what they want to, as long as it doesn't infringe on anyone else's right to have their own views or introduce illegal elements into society. I think this kind of activity undermines what the internet is all about - freedom. While in this instance, some people are applauding the incident, if the tables were turned and this were to happen to them a) it would not feel great b) they would not appreciate others taking pleasure in it c) they would not want their ISP to turn on them and say "You had it coming & now you're too big a risk".