Note all of the comments saying how Digg now suX0rz!!!!111 because of this action. Do these kids even live in the real world? Trademark law is pretty straight forward, and you have to police your mark or can be challenged. Today it's some kid doing something he thinks is harmless, tomorrow it's AOL.
But all of those commenting people seem to think that Digg is doing something evil here. Get over it. They're doing what they have to in order to protect their brand. In my opinion, they're also keeping some scab from leeching off of their success too, which I think is 100% valid.