But pulling an auction with no warning just because someone says "Encoder for MAME" or "MAME cabinet" is over the line, IMHO.
I agree that there seems to be some overreaching here as far at any use of the word MAME at all, but I would NOT put the phrases "MAME cabinet" and "Encoder for MAME" (or more specifically "compatible with MAME") in the same category.
"MAME cabinet" implies something that "compatible with MAME(tm)" (or "Encoder for MAME") does not. Which is why (I presume) they will allow you to say "compatible with MAME(tm)" but you are not allowed to just haphazardly include the word "MAME" in your acution title. They want to ensure that there is no implied association or formal connection, and I can understand that desire.
I don't see anything wrong with the letter.
First, mame doesn't want to be commercial except for a few specific cases like hanaho.
If oyu read what the letter says you can use mame in the description once. They would probably be fine with a description that said something like "works well with emulators such as MAME, Zinc, Nebula".
They don't want it in the title because that can imply the product is for mame (only) which there really is no product just for mame that can't be used with other emulators.
Now, your title could say "Cabinet for arcade emulation".
They just don't want you using their name to sell your product.