It didn't really affect players much, so there was no need to make a big announcement. Also most player's (casuals) didn't even know about this. It would hurt Blizzard's image more by announcing it.

The other thing is admitting they screwed up would be somewhat sympathizing with the guy who exploited it.

But it was their fault. They gave a kid a gun, and he used it. It's awfully sleazy to screw up, then cover it up and pretend you didn't do anything. They could've came out looking honorable if they said "We messed up, but we dealt with those responsible for the mistake, and we're moving on". Instead they did "Ban, Ban, Ban, nothing to see here, move along".

Is there an answer they could have given that would have sufficed?

Accidental mail-out to random, random passes it along to friend. Friend then one-shots most of Ulduar and gets abusive when found out and banned. Seems self-explanatory.

Internal actions are internal.

"It didn't really affect players much"

DId it affect me as "did my character die"? No, but that's the same as saying the hole in the ozone layer doesn't affect me because it's on the other side of the planet. Policy DOES affect you. Before this happened I was pretty assured that there wasn't really anything I could do wrong in the game as I'm a "law" abiding citizen of Azeroth. This episode showed that it's quite possible to get mailed some random thing by blizzard themselves and then get banned for using an in game item.

I wish I could forget it ever happened. Some of the comments people made on that article were just plain maddening.

*purposely not expressing my view on the subject to avoid re-igniting the debate*

Like bollicks it was Blizzard's fault.

If you go to the bank and deposit $536 into your account, and then check your balance later and find out that $536,000 was actually deposited, is your first reaction then the bank gave you a free bonus for no reason whatsoever and that you're at liberty to spend that cash any way you like, or that someone screwed up and you're not really supposed to have that extra money?

If you still can't wrangle your stupid-ass head around the fact the dude himself was responsible for getting himself banned, the Martin Fury even says "cheater" in its tooltip. Sheesh, how more clearer than that can it get?

"then get banned for using an in game item."

You're conviently leaving out the part where he used it to one-shot the current Raid instance. Plays God-Mode with an item that bears the label "CHEATER". There should have been zero ramifactions, because?

"Accidental mail-out to random, random passes it along to friend. Friend then one-shots most of Ulduar and gets abusive when found out and banned. Seems self-explanatory."

How do you accidentally mail a GM item? This is the ONLY time in 5 years of WoW I've heard of where a GM item was mailed to a player, so obviously "accidents" like this don't happen that often. But Blizzard never said a word, so we don't even know if the GM who did it so much as got a stern warning. An entire guild got banned(at least temporarily), and we don't even know what happened to the GM who gave out the item that indirectly caused said guild ban.

Sure the item says "Cheater", but there's lots of flavor text like that. One quest in the game(in Burning Steppes) says "You know this because you are psychic". Do you take that text at face value too? Every player that does that quest should setup a psychic hotline(or repent because Christians believe psychics use Satan's power)? Hell no, because WoW has tons of hyperbolic flavor text like that.

If a kid's parent gives him a gun, and the kid uses it, do you completely pretend the parents weren't at fault at all? Maybe it was an accident, maybe it only happened once, but it caused damage. You have to give blame to the parents for giving the kid the gun, without which he couldn't have committed his crimes. If you go by the Blizzard approach, the parents would/should have grounded the kid for life and pretended nothing happened, while ignoring any fault they themselves may have had.