The Android Market Developer Distribution Agreement says, "you may not use the Market to distribute or make available any Product whose primary purpose is to facilitate the distribution of Products outside of the Market," with Product defined broadly as "Software, content and digital materials created for Devices in accordance with the Android SDK and distributed via the Market." When we talked to Google, the company pointed out the same clause and said, "Applications in violation of our policies (like Kongregate) are removed from Android Market."
Greer adds that a number of people in Google had seen it previously and liked the app (not the ones who ultimately pulled it), and he hopes this is all some grand misunderstanding. We'll see, but in the meantime, the app is still available for side loading care of Kongregate's website. Nothing like a backup plan, eh?