I don't think the guy is nuts. He's just thinking creatively with the limitations of the mass market. Most games coming out nowadays have some level of retardation to cater to the mass market. But it's badly done, it doesn't really embrace the mass market because publishers and developers also want to cater to the hardcore, and want to keep a semblance of dignity. They don't want to be overtly seen as doing stuff for the lowest common denominator, they want to be the leaders in the game market, the elite, and want to maintain some self-respect. All in all, they don't go all the way. But if you really want the mass market in your pockets, you have to make a game they'll like. And for this, I think Molyneux is doing all the right things. It's retarded, backwards, but it's the genius kind of backwards.
The man is embracing the mass market mindset and being innovative within its limitations. People just want to start the game and get instant rewards and coolness. RPGs are, for the masses, nothing but an ego trip. The more ego the better. So Molyneux is right when he says that games are mechanically too difficult, because he is considering the masses. They want fun, and learning something complicated before the fun starts is just too much of a hassle. That's why he is focusing on accessiblity. His combat system is accessible, stupidly and simply so, but that is what is asked for by the masses. Then, he adds a motivation for the player to learn how to control the combat better: added coolness! The perfect motivation for a guy on an ego trip. I mean, just add some rythm to your pushing of the button, and you get music, and effects, and camera cuts. The shit is ON! Instant reward. Same is done for death, you don't want to die, because the consequense is decreased coolness. But if you do die, it's not so bad, because you can escape the terrible outcome by paying the ferryman. Accessiblity wins. Nobody on an ego trip wants to play a game where you coud somehow become less cool. The genius of Molyneux's approach is undeniable. I bet that if the development goes well, this is a hit.
So what does this tell us? It tells us that the more you want to please the masses, the more retarded the product has to become. It's not Molyneux that's nuts, it's the whole fucking world that has flushed its brains down the drain. Sad state of affairs, but hasn't it always been like that? Only it's now becoming apparent in computer games, that are being more and more directed towards the mainstream and shuffled in with the console. Long live the indies, I guess. The only really sad thing is that minds with potential are using their creativity to keep the dumb ones dumb instead of enlightening them up a bit. But hey, it's entertainement, where everyone just wants to turn their brains off and have some fun, right? The entertainement business has taken the place of the church of old.
This is all just another failure of the free market.