He's saying he knows they rated M, but I guess he means they should have been rated AO. I don't see how that's the case. The events in GTA3 and God of War are not worse than what you see in an R rated movie.
I thought the whole point of the AO rating was to differentiate stuff that is basically interactive porn (like the CD-i title you mentioned) from regular games. I guess the real problem is that since people still equate games as a kid's hobby it doesn't get held to the same standards as movies. Unless there is something really off the wall in Manhunt 2 that we don't know about yet, it is probably no worse than than a lot of the movies that are sold at Walmart, Target, and other "mainstream" retailers.
I can understand Sony, Microsoft, and Nintendo wanting to distance themselves from products that really do deserve the AO rating, but it doesn't sound like the ratings are being applied in a logical manner.