All the talk of lawsuits before the release of retail has burrowed one false fact into everyone's head:
Lego + Retail = Sued
Which is wrong. If Badspot put the lego minifig into Blockland and then sold it, chances are he'd be forced to remove it. If a modder puts a minifig into Blockland, there is no problem with laws because the mod itself is not making any money off it, so its fine.
But it does look like ass in any case.