It all started innocently enough a Battlefield 2 player, inspired by the movie Team America World Police, created a short fan film using, among other things, footage from BF2's Special Forces add-on module, sound clips from Team America, and sound bites from George W. Bush speeches. The movie, which builds on the back story of one of the Team America characters, shows a man in Arab headdress fighting US troops. It was all for fun, as are the many other BF2 movies that the game's fans have created. Note that there was no modding involved, merely assembling existing footage, dialogue and music.
Things soon took a disturbing turn, however a US congressional intelligence committee was told by the Pentagon and defence contractors that the video was produced by Al Quaeda in order to recruit jihadist terrorists. Further, Reuters picked up the story and published it under the headline 'Islamists using US video games in youth appeal"? (see its original article here ).
The real story has gotten out quickly, thanks largely to excellent reporting from Game Politics (see the GP interview with the video maker here ). Reuters has since released a follow-up article with more accurate details (see here ).
Clearly, video games are still misunderstood and portrayed incorrectly by government and media. Members of the gamer community are also surprised and annoyed that the US defence contractor (who apparently has a $7 million contract to monitor militant web sites) could make such a mistake (the initial Reuters report stated 'SAIC executive Eric Michael said researchers suspect Islamic militants are using video games to train recruits and condition youth to attack US-led coalition forces in Iraq"?). Many others have pointed out that the game America's Army is a full-on training and recruiting tool for the US army, and that there is something hypocritical about vilifying other games or mods that can be used for 'recruiting"? purposes.
As for the maker of the video, he is bemused at being portrayed as a terrorist recruiter, and is (understandably) concerned about being blacklisted and monitored by US security agencies.