Long story, short:
Scott's right, Blizzard and WOWI are wrong.
The only reason Blizzard has been able to enforce the stance that it has with regards to addon authors requiring fees for their work is that they are the 100-pound gorilla in the room and the addon authors are lacking the financial backing to challenge it in court.
Could you imagine what the world would say if Microsoft suddenly started telling developers of Outlook Add-ins that they couldn't charge for their products? I'm sure the DOJ would be all over that in a heartbeat.
Scott, perhaps it's time to see if you can't find some high-powered legal services from your fan base which would be willing to take this to the courts pro-bono.
Ultimately, the only thing that Blizzard should be allowed to do if they don't want others profiting (lets be honest: a whole new market would add to the economy both in money spent and jobs created - oh duh! - imagine the goodwill Blizzard would create for itself by creating and supporting such markets!) from addons created using built-in capabilities to the WoW product is to remove those capabilities.
But to say that no one can benefit from the fruits of their labor is just so contrary to the principles on which the US was founded that it's simply ridiculous. Not to mention that you have a corporate conglomerate using the "don't be greedy" argument when they continue to rake in the millions.
Don't think so? Take a look
here.