In their help page it was the only reason given for being removed from the index. Guess that paints us black. The site is static historical information with absolutely no commercial value or enterprise. They just dropped it.
We do have two other sites, also non-profit, education and history that are fully indexed in Live Search. The site search is more than adequate. So I really don't know what happened.
To your original question, upon finding that Google didn't show any prejudice to a site that Live Search de-indexed, and hasn't shown any prejudice to the sites that remain using Live Search, one could conclude that at least G doesn't turn their back.
Yahoo lists 235 pages of the same site, and all the IBLs. Looks okay here.
Yahoo Site Explorer view of site in question
What would you make of that?