Some tentative, and very quick (I have to run to an event) thoughts, which I hope to supplement later:
1. From my colleague Steve Yeazell: "In some ways Erwin will come out of it much better than Chancellor Drake or Irvine. Think about being the next person Drake calls to offer the deanship: even if you are in fact the very best person for the job, no one is going to believe that, and everyone is going to think that you were the politically expedient candidate, something that will make it much, much harder to recruit good faculty. This is a very bad day for Irvine (and for UC), no matter why it happened."
2. Also from Steve: "[T]he failure to preclear an important nomination like a founding dean with Regents suggests a rather modest level of administrative acumen [on the UCI administration side], something that the next decanal nominee might consider far more important than the 'academic freedom' issues."
3. This having been said, while I hope to have more to say on the First Amendment and academic freedom issues, I should caution against treating Deanships or Chairships the same way as scholarly positions. As the Second Circuit correctly held in Jeffries v. Harleston (cite and details later), the two are quite different. It is generally not proper, for instance, to refuse to appoint a professor because he's too controversial; but it may well be proper to avoid deans who are lightning rods for criticism, or likely to run into trouble with the Legislature or with others.
The example I give is Dean Ken Starr of Pepperdine. If he wanted to move to UCLA, I'd be delighted -- but if the faculty, the administration, or the Regents opposed such an appointment on the grounds that he'd be too controversial, and the controversy would get in the way of his effectiveness, I would not condemn their position as a breach of academic freedom, or of the First Amendment.
As I said, have to run; more later, I hope.