Wow, I missed a lot here! LOL
I've kinda skimmed through this thread; I haven't read every post word for word. That said, here are my thoughts...
I completely understand Chaos's reasoning for setting the rules of the site up the way he did. I know, from personal experience, that most kids will ignore the warnings, say they're 18 or over, and read whatever they want. But... if their mommies and daddies find out they've been reading material they deem inappropriate and complain to Chaos about it, Chaos can honestly say that his site has warnings and measures to keep that from happening and that the little angels ignored those warnings, lied about their age, and read anyway. It looks better than if explicit material was just posted freely, without any warning, for anyone to read. Yes, it's the internet and pretty much anything goes and we have the freedom to post what we want, but that doesn't mean a webmaster can't choose to set limits on his own site. If you have a problem with the rules of AC, there are plenty of other sites where you can post your stories.
On that same note, I understand why the mods choose stories that are R-rated or below to feature. They don't want to leave any readers out, nor promote underage readers reading material that, according to the ratings, they probably shouldn't be reading. I realize that, in doing that, they're probably leaving out some great stories that deserve to be featured. But that kinda brings me to my next point...
You, as the writer, determine what content goes into your story. You also determine its rating when you post it on AC. I don't believe there are strict guidelines for ratings, as far as what a story needs to have to be rated R, NC-17, etc. What separates an NC-17 story from an R-rated story? The amount of sex? The degree to which the sex is described? Where do you draw the line? It's not clear; it's pretty much up to the author. No one says you have to rate your story NC-17 just because it has some sex scenes. According to Tri, she decided to give hers that rating because they do have a lot of sex, and she wanted to warn younger readers. How is that much different than the mods not wanting to feature stories with a lot of sex in them for the sake of the younger readers?
I personally have nothing against NC-17 stories, and I don't think they're all sex and smut. But I feel that if you, as the writer, put enough explicit sex in your story to warrant an NC-17 rating, you're facing the risk of alienating readers who don't want to read that or whose parents wouldn't want them reading it. It's the same stigma of slash and visual writers. It comes with the territory. If you don't think your story is that inappropriate, change the rating and make it more readily available to all readers.