The earlier report has been confirmed by Blognation's founder, Sam Sethi:

I have announced internally that I am stepping down from blognation and that the company will be put up for auction

How does he address the public criticism? He ignores it. [See update below.] Instead, he puts most of the blame on Mike Arrington of TechCrunch -- but that looks an awful lot like "shoot the messenger" (plus "it's not my fault").

Yesterday I estimated* that Blognation's current traffic might yield $2,076 per month in advertising revenue. Factor in reasonable growth estimates plus the value of the domain name (if that's included), then subtract out actual and potential liabilities. The net: it's a tough call.

It's usually possible to structure a deal to purchase assets without liabilities. However, that would almost certainly be a huge mistake here. If a purchaser doesn't pay what is owed to writers (and perhaps developers), they will start off with a very poor reputation in the blogosphere.

(* Traffic is based on their published data; revenue is based on my CPM estimate.)

Update: After reading a few other reactions, I realized that I skimmed Sethi's post too quickly. Here's his defense for lying:

From that point on (yet with hindsight I deeply regret) I decided to keep up the pretense that blognation had closed funding to put Arrington off the scent and to prevent him publishing, in order to buy just enough time to raise new funding.

How lame.