This is a long time coming expected result. I had a feeling from way back when this thing first started that K was in the clear. Of course, as a K owner, I was banking on it. However, when you heard things like the DVDCCA arguing about the "spirit" of the contract, it seemed like they didn't have a case. If you're making that argument, it's likely you are doing so because certain specific wording isn't in there. As such, and affirmed by the judge's decision here, K didn't violate the contract terms.
It will be very interesting to see what happens going forward. Seemingly, we could see this market open up with new competitors using the same route that K took. What would be more interesting is if we also see major software publishers using the ruling to provide legal ripping tools on computers. I know, CSS-less tools are out on shelves now, but I'm talking about seeing mainstream big boys like Apple, MS, Adobe, etc offer legal DVD ripping tools with CSS keys. I don't know if the specifics of this "loophole" could be used for software solutions, but it would be cool. Having DVD ripping in something like iTunes would really change things for the better.
As for HD, I doubt this changes things much and may even serve to delay things. You have to think that the DVDCCA's lawsuit against K was considered when the HD-DVD and BR formats were being finalized. As such, you'd expect that contracts for key usage for those formats specifically forbids doing what K did. Beyond the lawsuit, they had to be keeping the future in mind a la MMC. It would be dumb to have a situation where manufacturers could offer content extraction solutions to consumers via loopholes in the key contract instead of through MMC. After all, MMC is likely to be an additional revenue stream for the studios and they'd want to protect that. So, this ruling could have the content owners asking more questions to make sure that the same doesn't happen with these HD formats before they sign off on MMC.
Who knows when we will see MMC ratified into the final AACS spec? It looked like it would happen last Summer, but here we are almost a year later and nothing. I don't even see it being discussed in industry publications. That's not good. You have to wonder if the new crop of online video content distribution models and advances made in HD-DVD and BR ripping tools have cooled the content owners' interest in MMC. Man, I hope not, but I wouldn't be surprised if MMC stays delayed for quite some time.