They shut it down due to (likely valid) concerns that it could potentially be leveraged to jailbreak the regular PS3 OS and/or run unlicensed commercial games.
The reason they care whether your commercial software is licensed is that their business model is charging for software licenses for that software.
Once there were indications that people were very much interested in, and working on, running rips of commercial games on PS3 Linux, and/or leveraging OtherOS to jailbreak a stock PS3, it was basically game over for OtherOS/PS3 Linux, in spite of the fact that it had been advertised on the box (of the original "fat" PS3) as a feature of the system.
Piracy (in the running unlicensed commercial games/copyright infringement sense) had long been the killer app for jailbreaking, including mod chips (and other schemes for playing CD-R "backups") for the PS1 and PS2, as well as PSP jailbreaks and custom firmware; homebrew notwithstanding, the most popular use was playing commercial games without paying for them.
Sony also nerfed the original 5-console installation (aka "game sharing") for PSN games after players organized public game sharing web sites to split the cost of games 5 ways.
"No one could have predicted this!" as they (don't) say.