Two survivors of ArsDigita have written up their versions of events. First Eve Andersson gave us her view: Diary of a Start-Up (summary: VCs suck). Then Michael Yoon responded with ArsDigita: An Alternate Perspective (summary: it was more complicated than that). Both are interesting recaps of what must have been tumultuous times.
I worked at a failed startup that never got beyond 30 employees, and I know there was plenty of room even there for multiple perceptions of truth. I can only imagine how complex a place like ArsDigita got by the end of its run.
By all accounts, ArsDigita was an idealistic place, staffed with intelligent people. Its founder Philip Greenspun (blog) is both idealistic and intelligent, with quirky and charismatic thrown into the bargain.
BTW: What ever happened to ArsDigita? It was bought by Red Hat.