I think you need to consider the idea that this is the way he's always acted.
His handling of the Grindelwald business can be summed up as several years of inaction followed by the most spectacular duel in recent history. Presumably he didn't explain the blood sacrifices + Deathstick = invincibility thing to everyone who asked, so he must have skated by on inscrutability.
He states with a certain bitter pride that he taught Voldemort he doesn't give in to blackmail or threats to hostages- which he (hopefully, considering the alternative) accomplished through more inaction.
When you think about it, a wizard with tremendous magical and political power who doesn't seem to actually want to do anything with that power is pretty much the best case scenario for a lot of people. Imagine that Dumbledore suddenly decided to act on Fawkes' advice: how much of Wizarding Britain is left standing?
I thought his response to blackmail of his allies was to burn Narcissa Malfoy (or at least have everybody thinking that he burned her alive).
EDIT: New discussion thread here.
This is a new thread to discuss Eliezer Yudkowsky's Harry Potter and the Methods of Rationality and anything related to it. With two chapters recently the previous thread has very quickly reached 500 comments. The latest chapter as of 17th March 2012 is Ch. 79.
There is now a site dedicated to the story at hpmor.com, which is now the place to go to find the authors notes and all sorts of other goodies. AdeleneDawner has kept an archive of Author's Notes. (This goes up to the notes for chapter 76, and is now not updating. The authors notes from chapter 77 onwards are on hpmor.com.)
The first 5 discussion threads are on the main page under the harry_potter tag. Threads 6 and on (including this one) are in the discussion section using its separate tag system. Also: one, two, three, four, five, six, seven, eight, nine, ten.
As a reminder, it's often useful to start your comment by indicating which chapter you are commenting on.
Spoiler Warning: this thread is full of spoilers. With few exceptions, spoilers for MOR and canon are fair game to post, without warning or rot13. More specifically: