Yeah Jon, that's part of it. WWII is an extremely complex and yes, morally ambiguous conflict, but it is boiled down into utter simplicity for us gamers, like we're idiots. Many soldiers in the Nazi army were basically drafted and propagandized with no real choice in the matter, while American soldiers were drafted (not as unwillingly as in Vietnam, but no one is ever happy about the draft), and Japanese soldiers were taught that the Americans were evil and unthinking invaders. Most of the current games are only aggravating the false perception that WWII was morally simple, good guys v. bad guys. You can bet that modern Germans and Japanese people don't feel that way about the war, and these people are hardly Nazis or kamikaze pilots.
By the way, the scene in Conker's Bad Fur Day is a spoof of Saving Private Ryan, but I think it's also a commentary on how war games were presented back then. In 2000, there was no M-rated war game, so it was quite novel for the M-rated Conker to take on the subject. By using furry animals in helmets and flak jackets, Rare could get away with a more accurate depiction of war than any "realistic" game of the time. And the truly sad part is that the same commentary still works today, as realistic war games are still not really realistic. The Normandy scene in Conker is funny at first, because it's surprising, but Rare struck a serious tone in the boat and maintained it through the beach storm and beyond. After a few initial laughs, this sequence becomes truly horrifying and disturbing.
As for Dynasty Warriors, I have thought the same thing about it. There are some key differences. Dynasty Warriors is largely focused on a cast of characters, many of whom are likely fictional. And because the games are based on a book about a war thousands of years ago, even the historical events may be fictional. It's similar to making a game about a battle in the Bible (which would be controversial for other reasons,too). Did those events really happen, and did those named characters really exist? It's very difficult to say without multiple historical sources. So there is a factual ambiguity there that gives Dynasty Warriors a different twist on this argument.
I saw this free market argument on the GAF thread, too. It's such a cop out. The issue is not whether you should be allowed to buy something -- I'm not a censor. The issue is whether it is moral to develop or play a game like this. And yes, that is subjective under most definitions of morality, but subjectivity requires that you actually think about something. I don't think this issue is something that most people think about, and if they did contemplate it, they might change their actions. Maybe not, but it's still an interesting discussion. Simply declaring that there's a free market is not going to shut down a philosophical discussion. There's also a free market of ideas, and I'm going to talk about this idea and get others to talk about it, because that's what I want to do. If you live in a world where there are no morals, no ethics, only capitalism, then obviously this thread isn't for you, and you're not going to be able to contribute anything to it.