I can’t comment with any credibility on the legal issues involved in Andy Baio’s problems with the Kind of Bloop album cover, but I must address one assumption I’m seeing in comments on the story:
That cover is NOT the original photo, downsampled. It’s a hand-crafted, precisely drawn interpretation of the source. Anyone who’s ever seriously put pixels to screen will tell you that this is an actual artistic method, one with its own challenges, tricks, and yes, an aesthetic.
To illustrate, here’s an object from The Incident. (No, I don’t know how Daimler-Benz feels about the inclusion of their iconic SMART car in our game.) I didn’t scale down the photo to start - that wouldn’t have even been helpful. I looked and I drew from scratch. That’s pixel art.