So when we were finally able to email directly with NIC.ly (post deletion) they said that the domain was removed because they didn't like the 'scantily clad' lady on the front page (and only page) of the site (which was Violet, in this photo: http://www.flickr.com/photos/dotben/3674835644/)
They're essentially now changing their tune for PR reasons.
The site's purpose was NOT to shorten pornographic urls, it was described as a "sex positive" url shortener in line with Violet's work as a best-selling author and academic in this space. being "sex positive" is not the same as saying "shorten your porn here".
However the wider issue, as I've stated at http://benmetcalfe.com/blog/2010/10/our-response-to-nic-lys-... is why is a domain registry asserting editorial control over a website that uses its domain. People should be very concerned about that.