I'm not sure there's a bad guy on either side here -- the RD may have made a philosophical decision.
According to the race website:
"Rather than attracting the world's top 10K runners for this event, we have decided to turn our 50 Buck 10K into a community run. The reason for this change is simple: we want to go back to the roots of what this event was built on."
Not sure if this written was after the conversation with DK. Anyway, if they have this focus, and the spornsor Heritage Oaks Bank wants this focus, then having one of the world's top 10k runners at all (paid or unpaid) might send the wrong signal, one that the sponsor did not want to send.
And regardless of what you might think, having one loyal sponsor it is worth more for the race for coming years than having any number of Olympians running it, no matter what their credentials or reputation.
If I had to guess, I would guess that DK and the race staff agreed to disagree, and the situation got blown out of proportion when it appeared on the Web (first time that's ever happened...).