Here's why it's worse: they inserted a plaintext encoding into the response from the onion-address lookup relay, and so anybody observing the user (e.g. the ISP) could detect what onion address the user was connecting to. This applies after the fact to recorded traffic as well. Thus the researchers had no control over who got deanonymized, to whom they were deanonymized, and when they were deanonymized.
> I do wish both sides would acknowledge this is a tricky issue. On the one hand, if I run a tor exit node or relay, it is my node and it seems like I'm allowed to do with it as I please.
You actually are not allowed to do with your relay as you please. At least in the US, the legal theory protecting relay operators (i.e. safe harbor) also makes it illegal to observe user traffic content except in certain cases (e.g. to improve network performance).
> One other thing to keep in mind here is that SEI is a DoD funded center.
This doesn't seem very relevant. All researchers have an obligation to consider and mitigate possible harms that occur during their research (source: I work in a military research laboratory). These researchers clearly did not fulfill that obligation, and I'm sure their institution is reviewing or has reviewed their procedures to make sure it doesn't happen again.