If you're a company that wants to do business in China then you have to play by the Chinese Government's rules. If you provide search results, that means you have to adhere to their strict censorship rules.
I think that sucks, but China is a BIG market and when your competitors are there, it's got to be tough to resist the temptation. Google, MSN and Yahoo! are all there and playing by the rules. Personally, I don't think American companies should be doing business someplace where they have to act in a manner that is diametrically opposed to very core American values, such as the freedom of speech. The high road isn't littered with big piles of cash however, so I don't actually expect major corporations to take it.
Unfortunately, things are getting a little more alarming than just blocking certain search results. Yahoo! in particular has been involved with the jailing of at least three Chinese dissidents. In the most recent case, Jiang Lijun was jailed after Yahoo! handed over a draft email that had not yet been sent. I'd like to think that Yahoo! was just complying with some form of a subpoena-like demand and not pro-actively policing their users' communications.
The draft e-mail, titled Declaration, was similar to manuscripts called Freedom and Democracy Party Program and Declaration of Establishment, recovered from a computer and a floppy disk owned by two other Internet activists, the verdict said.
The information proved that Jiang and the other activists were planning to "make preparations for organizing a party and to use violence to overthrow the Communist Party," the verdict said.
Dissident isn't an inaccurate label for Jiang, but I'm sure, depending on your point of view, any of several labels might apply. Activist. Terrorist. Revolutionary. I don't claim to know every facet of the story, but by American standards, perhaps he should be considered a Hero.
That, of course, would make Yahoo! a villain.