Even the kind of leverage/threats he was making aren't abnormal. What's threating to defame or emphasize looked at from one side is offering to sign a non-disclosure or non-disparagement from the other.
The content of these threats may be less tolerable than other negotiating tactics, but they are entirely normal in negotiations we don't label extortion. He's not donating horse heads.
As to pulling access to plugins - if at its heart this is about freeloading, then that action seems proportionate in principle as it's one of the few possible leverage points - it did not block existing installations, merely new ones - but the effect was likely poorly thought out as it relates to updates. Then again, WP engine had a workaround in pretty much no time, so even the update issue is not a big one; i.e. that power you state that Matt has does not appear to actually exist.
The whole saga seems very much in the eye of the beholder. Whether the end result will end up achieving Matt's apparent aims is of course another.
I doubt current wordpress sites will suffer much long-term harm in the crossfire, but they will perhaps have a short-term mess. But the power balance shift may well harm the overall ecosystem severely. The loss of trust alone is problematic; and if this takes down the de-factor maintainers of the wordpress core, which seems possible right now, that would be bad. Or worse, if it convinces them to go semi-closed source, and they then drag out their decline in a way that makes a finding momentum for a replacement hard.