Andy Baio captained a tribute album to 'Kind of Blue' done with 8-bit sounds. He carefully licensed all the music. But he didn't think about the cover art and the original photographer sued him. He settled out of court for $32,500.
This story makes me sick. Artists should control their art, of course. But it just seems ethically wrong and legally asinine to punish your fans.
Some of the takedowns and commentary I've read:
+ Andy Baio was sued for Kind of Bloop
+ Why fair use doesn't work unless you've got a huge war-chest for paying lawyers
+ Bescizza tweeted some good stuff on 6/23
+ Kind of A Dick Move
+ The MetaFilter thread (if you want to go completely down in the weeds, though there are some interesting comments by mathowie and waxpancake (Baio himself) before the thread goes to complete noise.