Syp has a comprehensive roundup of the blog reaction to the Allods Online cash store. To recap in extreme brief, Allods is a pure free-to-play (no box fee, no subscription, just an item store) game that was getting very good buzz until the game's item store prices turned out to be an order of magnitude higher than expected - for example, an absurd $20 for a six-slot upgrade to your bag space.
This incident may or may not do irreparable damage to the game's word of mouth. Publishers can try price tag brinksmanship, but it may not be forgiven, even if prices are later reduced. The bigger story, though, is that there was a giant red flag that should have warned players that something would have to change.
You know your item shop is broken when....
Buried in Keen's recap of the incident is the admission that, as of the patch before the sticker shock and awe, there was no need for players to actually purchase anything from the cash store to complete all of the content in the game. That's a big problem.
Though it's technically possible to build a free to play game in which 99% of the players decline to pay, I'd suggest that this would not be a game worth playing. A game in which 1% pay is a game in which 1% of the players matter. If they want fluffy cosmetic pets, that's where development will head. Hardcore raids? Expect the hardest of the hardcore raids anyone has ever seen. Whatever the specifics, the end result will be a game that will, by design, not cater to the overwhelming majority of its playerbase. That might sound fine if you think you can squeeze yourself into the 1%, but why not just make it a niche subscription game and cut out all the middlemen? (This might, in hindsight, be what happened to Free Realms.)
The most equitable way to implement an item shop is to design it as effectively an hourly fee. You might allow players to "pay" in time (grinding in-game currency to trade to cash-payers for items, or somehow toughing it out without the use of items at some greatly reduced rate), but everyone must pay somehow. Everyone has room to win under this model - the infrequent player gets a top-notch product without having to pay the full monthly fee, while the hardcore player knows that their voice actually does carry more weight.
Where should the price tag lie?
The irony is, if you look beyond the absurd bag upgrade, Allods might not have been as far off as you'd think. Keen estimates that serious raiding/PVP would rack up a $50-75 monthly bill. That's probably double what it should be, but - if the game actually delivers (which its fans seemed to think that it did until this week) - it's not a 10-fold overcharge. If the market standard is that everyone pays $15/month, there should be a niche for a product that comes in the $20-25 range for players in the top tier of content, with service to match. If anything, it's better to put the prices at the highest rate you can imagine and then lower them than establish a price point and have to raise it later.
Whether the damage has already been done is a separate question - this incident is more than enough to kick Allods to the bottom of my list, for "wait and see how this shakes out before wasting any time on it". That's unfortunate, because they might have gotten more right than the market gives them credit for.