This is just a testament to how most MBAs are incapable of seeing past the blinders that were put on their eyes in B school. Anyone who's been in Silicon Valley long enough will have seen this in many other forms (I know I have), although perhaps not as high profile as this one.
The success of Reddit is directly attributable to high profile subs (/r/AskScience, /r/AskHistorians, /r/AMA, /r/ListenToThis, etc.) and less visible but still well run subs that cater to more niche interests/topics (/r/MakeupAddiction, /r/PersonalFinance, etc.). Those subreddits would not exist without the thousands of man hours put in by moderators who are volunteers (modulo a few exceptions, such as Victoria). Anyone who has moderated an internet community knows how much sweat, effort, time, and pain go into maintaining a high quality community, and how crucial it is to keep your moderators happy and make them feel like their effort is valued.
The fact that the people running Reddit do not seem to realize that is a perfectly valid reason for the user base to be angry. A lot of Silicon Valley executives like to think of their company+product as some neat little money making machine that sits in a vacuum and that they can tweak and modify as they like. But the reality is that building a community platform like Reddit is very different from running a sausage factory. You can run your sausage factory in to the ground, and the sausages won't complain (the workers might, but the US does a pretty good job at avoiding that through strict control on labor unions). But when you start shitting on Reddit, the users will complain and protest - after all, you might control the code and the servers, but the community as a whole has contributed much more than you have to the end product.
You can't separate "reddit" and "the community" like some commenters here are doing. This dualism makes no sense - reddit and its community are the same thing. You can't have the thoughtful, well run threads on /r/AskScience without the dumb jokes on /r/funny.
Ellen Pao and friends do not seem to grasp those subtleties (this apology is just damage control), and it lead to the complete disaster we are seeing right now. This isn't rocket science - in fact the Reddit community is quite predictable. Any Reddit user would have been able to tell you how the community was going to react to these actions. The fact that Ellen Pao has some shady connections (her husband not being in jail because he has enough money is a good first example) is just more fuel on top of the fire. This was extremely easy to predict, and the fact that the Reddit leadership seems to be completely clueless about it is a very bad sign for things to come. The reddit community didn't have a problem with kn0thing, yishan, and others because they were first and foremost reddit users and know how to interact with the community. It's not the case for the current people in charge.
The community has every right to be up in arms. And if you think that the Reddit community is shit and don't spend time there, like some commenters here state, then what makes you feel like your input has any sort of relevance?
This isn't a technology or management fiasco - it's a political debacle. At a community interaction level, it's not very different from taking someone with arbitrary credentials and putting them in charge of a country they're completely unfamiliar with in the hope that they're going to make that country a peaceful democracy. It just doesn't work - you need the leadership to come from the community for it to have any lasting chance.