The reason they are suing Linden:
They are suing "Linden Labs" because the T&Cs of Second Life state that anything you produce "in world" is your own and that you own the copyright -- they also state that they comply with the DMCA in this regard.
This is akin to paying a web hosting company to host you digital photography, protect your copyright, and allow you to sell access to it -- then finding that another customer managed to copy your photographs and is hosting them with the same company but giving them away. Since you are paying for copyright protection and hosting you ask the company to take down the infringing site, and they don't.
You may not like Second Life, or even see its appeal, but this has very little to do with the actual "game" and is about contracts, the DMCA, and copyright.
I'm always interested to know what the people who supposedly have "Real Lives" actually do that makes them so much more special than those who like to use Second Life -- do you all go straight from work to the gym, then do some charity work, then teach your kids quantum theory, make love to your beautiful partners then make some more notes in the margin of King Leah as you drift off to sleep?
I think you just watch TV with your other half, go on the odd bike ride, have a few drinks with mates in the pub and feel smug because you're not having conversations about politics, philosophy or art with people from across the world while playing around in a virtual environment.
Personally, I find people in Second Life more open minded and less judgemental than in real life -- meaning conversation is much more wide ranging and stimulating than most in real life. It also gives one the opportunity to communicate people with diverse social and political backgrounds from all over the world.