Did Twitter not understand what their platform could do?
After all, by suspending British journalist Guy Adams they must have understood that they would suffer the wrath of thousands of users and hundreds of writers. They must have known that it would come out that Twitter actually made NBC aware of the offending tweets (Adams was posting inflammatory content about NBC using the #nbcfail tag and tweeted the email address of NBC executive Gary Zenkel). It makes no sense unless you consider the context of Twitter's relationship with NBC and the broader perspective of what that represents.
Twitter knows their own power
In their Twitter for Newsrooms page, Twitter offers testimonials from Jake Tapper of ABC News and Andy Carvin of NPR, both extolling the benefits of Twitter for journalism. Describing coverage of the highest levels of Government as well as the Arab uprisings last year, they reinforce the power that Twitter holds for sourcing and distributing news. Twitter is completely aware that suspending a journalist working for a British paper covering the Olympics while they are taking place in London would cause a PR fiasco. So why would they willingly do it?
To send a message.
Twitter is a good partner
Twitter is not the upstart open source platform that it once was. They want to make money. Most likely by going public. They've recently focused quite intently on their advertising product and have cut off access to their API to both LinkedIn and Instagram, moves that are generally understood to be the tip of the iceberg rather than isolated instances.
"Simply put: we don't build services to make money; we make money to build better services.... these days I think more and more people want to use services from companies that believe in something beyond simply maximizing profits." - Mark Zuckerberg from Facebook's S-1 filing to the SEC
"Mr. Zuckerberg will be able to effectively control all matters submitted to our stockholders for a vote, as well as the overall management and direction of our company." - Facebook's S-1 filing to the SEC
"The best way to get a new team on your side is to trash the last team you played for.... and if that doesn't work, then just like prison, you pick the biggest baddest dude on the team, and you kick him in his teeth." - Kenny Powers (Eastbound and Down)
Twitter doesn't want to curtail anyone's freedom of speech. Not only would it cost them more to monitor but it probably wouldn't be very helpful to their growth. They wanted to send a message that they are a reliable collaborator. By doing something unsavory that they knew they would catch flak for, they sent a message that they are willing to do whatever it takes to advocate for their investors. That's a message that Facebook didn't communicate well when they went public (though in practice they seem more recently motivated to prove themselves). Leading up to a Twitter IPO, positioning itself as the anti-Facebook is probably a pretty shrewd strategy.
People were understandably upset and that was the point. It wasn't done for the people.