Digg is a San Francisco start-up we’ve mentioned before that ranks news items by letting people choose which stories they like anywhere on the Web.

A controversy roiled the site yesterday that points to a significant weakness of the Digg model, but also to the bewildering set of intellectual properties we are dealing with these days.

Here’s what happened. Someone wrote a blog post accusing somebody else of copying elements of Digg’s site’s features. Then readers “dugg” that blog post, promoting it to…

the top of Digg’s site. But the accusative piece turned out to be wrong — or at least lacking in full perspective.

The accusing blogger wrote that the supposed thief, O’Reilly’s Steve Mallett, had copied some of Digg’s CSS features. But it turns out Mallett’s sites, iTunesLove.com and LinuxFilter, are built on Pligg, an open source project that recreates the user, story, and voting backends behind Digg. Pligg in turn is based on a Spanish Digg clone, MenĂ©ame…

So the controversy revealed the “madness of crowds,” and the shortcoming of having no editors to ferret out what stories are accurate and which ones are not. Sheesh, and we were just talking about how Wal-Mart screwed up by letting a human editor make decisions. But as Jeff Nolan writes, the event also reveals the increasing complexity of intellectual property in an open source world.