I'm sorry, but if a consumer buys something, it should be his to do whatever he wants with it. Of course, certain restrictions, such as file sharing, apply. GeoHotz didn't have a responsibility to control what people did with his custom firmware. He didn't endorse that it be used for piracy.
The one thing that's really keeping me from buying a PS3 is that at the moment, it can't run Linux. I'm not a big gamer (the only console I've ever owned, and still do, is a Dreamcast,) but I really like older games. I grew up playing SNES and N64 Roms, as well as old LucasArts games on my computer. When I found out that my Dreamcast could emulate these systems without any modification, I jumped at the chance. Hell, there's even a port of Linux to the Dreamcast! For Sony to have sued Hotz was ridiculous! If Sony had as much incriminating evidence against him as they claimed, why did they not only try to settle, but also didn't seek any compensation?