When video games first appeared on home computers, players quickly realized that computers can be programmed, and thus games can be modified to the advantage of the player. We might have had impossible to beat jump-and-run games in the 80's, but we also had infinite life cheats. Cheating in video games is so widespread as to be nearly universal, and many video games come with built-in cheat command consoles. The general idea behind that is that the video games are there for fun, and that cheating is better than quitting a game in frustration.
Obviously the validity of cheating is more or less limited to single-player games. It might be more fun for YOU to use a wall-hack in Counterstrike, but it certainly is less fun for your opponent. Thus cheating in PvP games is frowned upon, and a lot is being tried to prevent it. MMORPGs are in a weird spot here: On the one side a lot of activities in a MMORPG are essentially solo, so cheating wouldn't hurt anybody. On the other side there is a certain competition even in PvE, and in some parts of the game your cheating can negatively influence the experience of somebody else. For example exploiting a dupe bug can kill the player-run economy. Technically MMORPGs are well-placed to combat cheating: By keeping all essential information server-side ("the client is in the hands of the enemy"), cheating can be mostly prevented.
That leads to an interesting development for games which are somewhere between pure single-player and pure multi-player games, for example Diablo 3: The server-side technology can be used to prevent cheating. And the multi-player interaction can be used to justify this suppression of cheating for the greater good. Which leaves us with a lot of people who play Diablo 3 as a single-player game, and would very much like to cheat, but can't. And then in a brilliant move Blizzard turns around and sells them the means to cheat, via the real money auction house. And by sharing the money with other players, Blizzard nicely gets around any moral objections.
I tried the auction house in the Diablo 3 beta (gold-based, not real money). And my general impression of it was that it diminished my fun of the game. In a game which is essentially about collecting loot, the ability to buy the best in slot gear from the auction house removes a lot of the excitement. And I never had the impression that I *needed* the loot from the AH to overcome some challenge, I found the difficulty to be quite well balanced for my randomly found gear. But as Cam said yesterday, if I ever felt the need to cheat in single-player Diablo 3, I would prefer to do so with some cheat code. The idea of having to pay to cheat seems weird to me.