It's not so well knwon in the general public (I work in the field), but Cannes is the biggest movie distribution market worldwide, in parallel to the Festival. All the buyers and sellers are there. Most yearly purchases of movies worldwide are done at Cannes (that excludes most of the American studios' movies - though Americans buyers are there - but it's true for all the rest).

It's a cultural thing, I guess. At Berlin it would have been even worse. By all accounts Von Trier's new movie is most ordinary and the French perceive his press conference as an out of place and completely unacceptable publicity stunt demonstrating a complete lack of judgement. Not the first time he does something like this, but this time it really got out of control. The move of the Festivcal seems puzzle the rest of the world (incl. the anglo american media that yesterday were baffled and wondering if this was humour or not, when the French who are more used to Von Trier got it was sick humour right away), but today it seems the anglo-saxons are all "oh.. he was joking, that's sick but he apologized" while the French (and francophone media, it's the same in Quebec) including the left like Liberation usually keen to defend freedom of expression all support pretty unanimously the decision of the Festival. Charlotte Gainsbourg (who's French and half-jewish) declined to comment beside saying she was satisfied with Von Trier's apologies (where he called himself an abject moron, but used an all too ironic tone), but she cancelled all her further promotional appearances for Von Trier's movie. Kirsten Dunst, who unlike the stoic Gainsbourg was the one whose face showed during the press conference she'd give millions to be somewhere else, did not. Cultural thing. The French humourist Dieudonné was declared persona non grata in Canada for indulging in the same sort of "jokes" about being a Nazi. He split the opinion in France... until he became a candidate for Front National.

I dont' think this will harm the reputation of the Festival one bit. Some will disagree about the decision, but I doubt many, if any, will rise to defend Von Trier. His movies have not been banned, by the way, only Von Trier himself is banned from ver appearing at the Festival (he can even come to Cannes and speak to the media, just not at events tied to the Festival). The question is more if Von Trier will decide not to submit future his movies to the Festival. He didn't seem particularly outraged about the ban - he's the kind to at lest half wear it as a badge of honour. And this is Cannes; the decision is the administation's, there's not telling what the totally independent jury will do, this year or in the future.