I would like to first state that I sympathize with those who are upset by this policy (see here for an official interview), and that even for those of us who can understand some reasons for this policy, it is not exactly something to celebrate.  At best it seems that it may be an unfortunate remedy.  I, like many others, would like to take a stab at expressing my initial thoughts on this controversial policy.

The foundational doctrine/theology here is that the church teaches that sexual relations outside of a marriage between a man and a woman are serious sins.  This has always been the teachings of the church.  You may disagree with this, but that does not change this important teaching.  It is likely that those who are upset about this policy disagree with this, while those who accept it agree.  Yet, I suppose it is possible to agree with the doctrine, yet disagree with this policy.  I for one think it is unfortunate that local leaders do not have some leeway, and be able to take things on a case-by-case basis.  But I understand that because opinions on this topic vary so much (even within the church) that there may be wisdom in a consistent policy.

A key aspect of the controversy is requiring children with such parents to wait until they are adults (and some additional requirements) to be baptized.  One should keep in mind that there is a categorical difference between having to wait until you are an adult to officially join the church and be baptized, and not being able to be baptized at all.  Thus wording such as ‘ban’ is not accurate.  ‘Delay’ may be better.

Some have stated that this policy is against scripture, and may cite references similar to D&C 20:37 which states

37 And again, by way of commandment to the church concerning the manner of baptism—All those who humblethemselves before God, and desire to be baptized, and come forth with broken hearts and contrite spirits, and witness before the church that they have truly repented of all their sins, and are willing to take upon them the nameof Jesus Christ, having a determination to serve him to the end, and truly manifest by their works that they have received of the Spirit of Christ unto the remission of their sins, shall be received by baptism into his church.

And further regarding parents D&C 68:25

25 And again, inasmuch as parents have children in Zion, or in any of her stakes which are organized, that teach them not to understand the doctrine of repentance, faith in Christ the Son of the living God, and of baptism and the gift of the Holy Ghost by the laying on of the hands, when eight years old, the sin be upon the heads of the parents.

This is actually quite a high standard.  I feel that part of the problem is that the church has been far to lenient in applying this standard.  We often baptize anyone who will let us (which is part of the retention problem).  It is my understanding that baptism at 8 years of age is the youngest that someone can be baptized, and then only under the most ideal of circumstances.  In many cases I think waiting for deeper understanding before making such a commitment would be wise.  Yet, our culture has made baptism at 8 something of a rite of passage – thus part of the outrage due to social stigma associated with an unbaptized child.  One of the things that may need to happen to bring some peace to those who are upset is to view baptism as a very serious commitment, and that waiting till adulthood in some cases is a wise thing to do, rather than as a punishment.

Another aspect of this policy is the official naming and blessing of infants not being allowed for children with such parents.  What needs to be understood here is that this type of blessing initiates an official membership record number for the infant.  These blessings ideally would only be done for children of parents who are highly committed to the church.  This policy does not prohibit any blessing at all, only this formal naming blessing.  Again, this policy can carry a social stigma for the child not blessed that will be upsetting to some.

There are many who have struggled in search for a reason for this policy.  My take is that it is an attempt to address a fundamental conflict between the church and these families.  On the one hand the church clearly teaches that such sexual relationships are serious sins, and on the other hand such couples have committed to and self-identify with just such a relationship.  Thus we have fundamental conflicts regarding serious commitments – with children getting stuck in the middle.  The remedy the church proposes with its policy is to wait for the child to be an adult before they make such a serious decision between loyalties in such fundamental conflict.  Even if you do not agree, I hope you can see where many would find this a reasonable approach.