http://wiki.answers.com/Q/What_is_the_difference_between_ass...
(I suspect the main objections to indoor paintball will come from the venue. Perhaps a less messy, but still humiliating, method can be used?)
That said, that's the least important reason, the more important one being that you can't just nail people with any kind of gun at an infosec conference, no matter how unconf it is.
It is also worth mentioning that Black Hat (the two days preceding DEF CON) has reportedly seen a drop in registrations due to lack of funding for federal employees to attend (I have no source for this other than industry rumor). There was a suggestion that some would still attend DEF CON and save on the registration cost for Black Hat, but many were planning to stay away anyway.
I feel that this is more public relations than anything else, the feds will still be there but DEF CON can present the image of being underground hackers fighting "the man". Some of the smartest people that I have met at these sort of events work for governments around the world, either directly or through private companies.
The reason the lines have blurred between the two groups over the past decade is as much to do with money as it is to do with diplomacy or a shared enemy. I think that this statement goes against one of the core values of DEF CON: that everyone is welcome, regardless of background or ability.
This year, in the spirit of inclusivity, they should bring in the lead architect of the Great Firewall of China.
[1] https://www.computerworld.com/s/article/9229756/NSA_chief_as...
That said, I doubt anyone interested in working for the NSA would be put off by this/the recent leaks, or that anyone who didn't want to work for the NSA was going to change their mind at DEF CON.
It's folklore wisdom that many of those people have to tell their friends and family that they work for the "GSA" doing PC networking or something like that.