As I said there and elsewhere, neither reason is sufficient to bar it from the ballot. SFWA issued an official statement reported on SF Awards Watch regarding the allegations, and left the work on the ballot, but in my opinion, they needn't have tried to "rule" on what might be called the "substantial allegations," and instead could have dismissed the complaint on technical grounds, thus:
1. Professional production. SFWA makes no attempt in its rules to define what a professional production is. Therefore, it seems to me that the prudent thing to do is to consider the judgment of the members of SFWA who nominated the work.
By the way, WSFS used to try to define "professional publication," but abandoned the definition in 2006 (despite what this year's Hugo ballot said). It never used "professional" in conjunction with dramatic presentation, and neither dramatic nor written works ever had to meet a "professional" test. In those areas where it matters, WSFS now bows to the collective will of the voters (nominators), who decide "professional" (where it's part of the award criteria) by their nominations.
2. Copyright violation. I'll stipulate that WEaT is a derivative work. It may be an unauthorized derivative work; however, that's irrelevant in this case. It's not SFWA's business to go looking into the legal status of works nominated for the Nebula Awards. There's nothing in the rules that says "nominees must not violate anyone else's copyright." Whether producing unauthorized derivative works is good or bad isn't part of the argument. Works are eligible regardless of legal status if they meet all of the technical eligibility requirements.
Therefore, in neither of the two cases would SFWA have been justified in disqualifying the nomination. In essence, the Nebula Award administrators jurisdiction doesn't extend to the areas in dispute, and SFWA should have, to put it legalistically, "dismissed the charges for want of jurisdiction." In fact, I think it's a bad precedent for SFWA to have attempted to address the substantive issues, because it sets an unfortunate precedent and suggests that SFWA has to investigate the legal status of Nebula Award nominees, which they surely don't want to do and certainly shouldn't be doing.
Anyone who called for the disqualification of this work on either of the two grounds cited should be really careful about the precedent it would set. Oh, sure, you may think this case is obvious to you, but what would you have done if something you considered "professional" and/or "legal" is disqualified in the future because it doesn't live up to the administrators' standards of "professional" or "legal?"
You really shouldn't trust award administrators to make too many subjective decisions. You can't be certain they'll always rule the way you want them to rule next time.
Edit, 18:50: Added some clarification to point 2 stipulating the derivative nature of WEaT.
Edit, 5 March 10:55: Fixed grammar and punctuation mistakes.