Mod creators could still release their mods for free but could opt into payment if they felt they were deserving of pay. So the people who thought mods should be free could just not purchase any mods for sale. Instead they took to complaining to Steam about opening a venue that might encourage mod development and create more content for everyone.
Correct me if I'm wrong... but it sounds like a bunch of reactionaries got mad over something that would largely only have a positive effect on them. In fear of pissing off its consumer-base, Steam took a step back.
Am I missing something here?
E: Reading through the comments on the scenario. Seems like there was a bit more corporate muckery going on. I'll have to read more, I've only been following this drama loosely.