While I personally am not a lover of the material in question (literature involving incest, bestiality and rape), neither do I feel business and commerce has the right to impose censorship and bully tactics on business partners. As so many have said, this is the slippery slope. First censor writers of erotica. Next filter the arts for any hint of potentially offensive material. Allow this precedent, and we face banning of Nabokov’s Lolita, Atwood’s The Handmaid’s Tale, and for some extremists Chaucer’s The Miller’s Tale.

‘The Rape of Leda’, Roman relief, c 2nd century B.C.

And hell, if we’re going to start banning books dealing with incest, bestiality and rape, and sellers of such literature, we might as well start purging libraries of books like Sophocles’ Oedipus Rex, smash ancient Roman sculpture and relief, or for that matter rewrite the Bible to eliminate Noah’s concourse with his daughters, or for that matter the entire Biblical book, Song of Solomon. Why stop there? Why not ban study, or even demand destruction of, ancient Hindu temples which are a testament to the virility and sexuality of the human species?

Hindu temple in Khajuraho

The EFF (Electronic Frontier Foundation) issued a press release, as did the combined bodies of NCAC (National Coalition Against Censorship) and ABFFE (American Booksellers For Free Enterprise) issue press releases on this issue.
What can you do? To quote from Mark Coker’s (founder and head of Smashwords) notice to publishers and authors:

Tell the credit card companies you want them to give PayPal permission to sell your ebooks without censorship or discrimination. Let them know that PayPal’s policies are out of step with the major online ebook retailers who already accept your books as they are. Address your calls, emails (if you can find the email) and paper letters (yes paper!) to the executives. Post open letters to them on your blog, then Tweet and Facebook hyperlinks to your letters. Force the credit card companies to join the discussion about censorship. And yes, express your feelings and opinions to PayPal as well. Ask them to work on your behalf to protect you and your readers from censorship. Tell them how their proposed censorship will harm you and your fellow writers.

Visa: http://finance.yahoo.com/q/pr?s=V+Profile