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Natace - At first I thought the same thing, it's a bit much for a competition, but again let us not forget here that game development (I consider at least) is an expressive media, as with fine art, poetry, literature and films, all of which resemble Nazi appeal, destruction, and in this case (as well as many others) humor.
But you're right in saying we should, and most of the time, do take into consideration ethical response, but informally this is just a private competition, as with no one is being forced to recognize any piece other than the judges.
But it does bring up the topic of what's moral and immoral for video games.
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