The Supreme Court has ruled [pdf] against the state of California in Brown v. Entertainment Merchants Association, striking down AB 1179 as an unconstitutionally vague restriction on free speech.
The law at hand provides for a fine of $1000 to be levied against retailers who sell or rent violent video games to minors. Using a modified version of the Miller test, the state would determine which games contained the necessary quotient of violence to qualify. The majority opinion of the Court states that California's law does not address a "compelling" interest, and thus does not meet strict scrutiny.
Rejecting the notion that depictions of violence in video games are more vivid or dangerous than those in literature, Justice Scalia writes:
Reading Dante is unquestionably more cultured and intellectually edifying than playing Mortal Kombat. But these cultural and intellectual differences are not constitutional ones. Crudely violent video games, tawdry TV shows, and cheap novels and magazines are no less forms of speech than The Divine Comedy, and restrictions upon them must survive strict scrutiny-a question to which we devote our attention in Part III, infra. Even if we can see in them "nothing of any possible value to society . . . , they are as much entitled to the protection of free speech as the best of literature [footnote, p. 9]
He goes on to point out that many great works of literature, such as Grimm's Fairy Tales, the Odyssey, and Dante's Inferno feature harrowing acts of violence.