Video games are no more harmful psychologically than are movies, books, or television. We have pretty solid mental barriers and, even in a state of immersion and suspension of disbelief, you're still very aware that what you are encapsulated in is not truly reality. The interactive nature of video games does not give them power over this, nor does the realism of the pre-rendered CGI in a movie, or the powerful stimulation of imagination you get from a book.
People that don't understand a technology can often be afraid of it if they're very tradition-oriented or past-thinking.
Someone who is mentally unstable and very likely a future murderer may play his or her fair share of CoD, but CoD is not what made them mentally unstable. Similarly, Riddler was rejected by art institutes, but not all people that are rejected by art institutes put genocide into motion.