The Chinese Government treat the 2008 Summer Olympics very seriously; it has been the top national priority since 2001. An successful hosting of the event would boost the status of China in the international stage according to the Chinese point of view (for the Chinese Government, its significance would be equivalent to launching a aircraft carrier and sail it across the world). The resignation of Steven Spielberg is like a slap to the face for the Chinese Government because of Spielberg's influence in the international stage.

Was Spielberg right to resign? Depends on how you look at it. From the technical point of view, Spielberg probably had a contract for this such huge event, and by quitting without giving a clear notice beforehand, he probably violated the terms of his contract and thus it's fairly unaccpetable. It is also unacceptable to connect sports to politics, which is not a good example of athleticism.

The Olympics will go on just fine. This particular move would probably only stay in the news for a short while, and then it will just disappear. It will only be a big deal if the US Government decides to sanction the Beijing Olympics in support of Spielberg and other celebrities, which is highly unlikely.