@Pattriot: I'm all for following the rules and bending them a bit here and there. The trouble comes when the rules change every single time you look them up.
Without going into details -- I'll leave those to Molly and Matie, who can speak with authority -- what happened is this. The people planning Pornotopia chose a venue with appropriate zoning -- playing by the rules -- and called the city to make sure this was fine. They said yes, that's fine. Then, at the last minute, they said no, that's not fine: we're now interpreting the zoning code in a way that forbids what you want to do. Incidentally, their interpretation also renders as "adult entertainment" any film that shows a bare boob. Even one. So the film festival was cancelled.
The alternative show was planned around their new interpretation of the zoning regs -- trying to play by the rules. But then the city decided that no, if that went down, they'd find some way to shut the event down. If not the zoning code, then some other law. I believe some of this happened in writing. The rest was done through phone calls.
Bottom line: how can anyone play by the rules when the people in charge are continually changing them and the course of action they approve one day will get you prosecuted the next?