Asking for permission is absolutely not a minimum for fair use.
Of course, we'll never know if it constituted fair use because, at the end of the day, he who wielded the larger stick forced the result that he wanted.
This was neither criticism, comment, news reporting, teaching, scholarship, or research.
Furthermore, it was commercial use (regardless of whether the work created from the photo was itself sold, it was part of a product that was sold).
Whether it is fair use or not, we don't know, but I'm not a lawyer, I'm going to venture to say you're not a lawyer, he's not a lawyer, and he didn't contact a lawyer before using it.
He had entirely what came to him ... even if it was a bit harsh.
IANAL, and I am not familiar with all of the little details that go into determining whether something is fair use. From the reading of the applicable laws and precedents and having an actual lawyer go through those with me (I took a class last semester on IP law), however, I don't see anything that would outright bar this from being fair use.
[1]: http://caselaw.lp.findlaw.com/scripts/getcase.pl?navby=searc...
My lawyers and I firmly believe that the pixel art is "fair use"
As a courtesy, I am taking his word for this as well as assuming that he held the same belief before the legal trouble.
Given that assumption, we can blame him for making risky assumptions himself and for not contacting a lawyer to make sure, but we cannot blame him for doing "a minimum" of asking permission when he didn't believe that he was using the image in a way that required that minimum.
Pleading fair use is like pleading insanity, there's only a narrow band of conditions it applies to and you can't plead it until you're standing infront of a judge.
http://en.wikipedia.org/wiki/Fair_use
It's a major reason for the outrage; even if Baio's use of the image was fair use to the letter, fair use law couldn't have protected him from the weight of the financial burden needed to protect his rights.
Your insanity defense analogy doesn't validate because fair use isn't supposed to simply act as a plea when you're forced to defend yourself. It's a protection that we all have currently.