All this guy had to do was go to his employer and say, "Listen, you should know that I'm working on an open-source project that is in the same ballpark as what I'm doing at work. However, there is no shared code, a different architecture, and the two don't even compete against one another. Plus, what I'm doing is open source."
If his employer had said, "Yeah, go ahead -- no problem," then there wouldn't have been a problem.
If his employer had said, "We're all in favor of open-source contributions and projects, but not when they compete against our core products, from which we make money," then they could have worked out a deal. Or not. But at least it wouldn't have been left up in the air like this.
I definitely see a problem with an employee creating an open-source project in the same space as his commercial, day job. While a cease-and-desist order is pretty unpleasant, all they're saying is that he has to stop work on the project. It could have been much worse, and much more expensive.
It also seems weird to me that while the former employee is saying he needs to stop, he's letting others fork the code and keep going with it. If I were interested in picking up an open-source project, I'd be hesitant to join one in which there had been explicit legal threats against the original author.