Evil enough to give up free lunches and the tech world's best resume point? Evil enough to quit if you already work there?

In other words "evil enough so it cannot be rationalized away" in the face of "free lunches"? -- Probably not.

Worse things have been rationalized away by people...

While it might not kill their influx of talent to zero, I'm sure it'll put at least some dent in it (however minor it may be). There are people that will not be able to rationalize this away, and at the very least there will be a lot more people that will have their view of Google major-ly tarnished (even if they are still willing to swallow their principles and go to work there).

I can't speak for others, but at some point I'm going to start hiring people to work with on various projects, and if they tell me that one of the reasons that they left (or chose not to work for) Google was because they were disgusted with Google failing to do its part to "Do No Evil" and support Net Neutrality, I would be much more inclined to hire them.

That's someone I respect. Someone I'll get along with, and probably someone with a strong moral sense and therefore someone I'm more likely to trust. I don't want to hire people who just come for the "free lunch."

Well, I don't work for Google but I know I would switch to Bing if this happened.

Bing actually isn't that bad anyway. It's a legitimate competitor on pure technical merit.

It's quite likely these type of agreements will become common place among large companies and VC-funded startups ("Today, Sequoia announced a deal with AT&T, giving its partners special access to..."). Microsoft and Apple aren't going to let this advantage last long, and the internet landscape could look quite different in two years.

If they were naive enough to buy into "Don't do evil" in the first place I'm sure they will buy whatever hand waving Google uses to excuse themselves. How many people quite over China?