I can definitely see both sides of the argument here. As a seller on the B/S/T auction section, I try to keep the bid increments low ($1) to encourage more people to join in the bidding. But I am generally selling lower priced items in this space.
I think the issue with the SGC 40 Titus is that it sort of straddles the line in terms of pricing. It's a mid grade T206 common that, because of the perceived scarity (due to hoarding, mustache, etc...), carries a premium. If I was the seller, I probably would have still kept the bid increments to $1.
That said, I've never thought of that decision in terms of how it might anger the potential buyers. As you said, at a normal auction, a one dollar bid increase would be laughed at by the auctioneer. That's not the case if the rules state specifically that this is the bid increment.
I placed the opening bid of $75 ($35 over minimum) because that's what I personally would pay for the card. I know it is worth more and I already own a lower graded copy, but that was my price point and I figured why waste time bouncing between $40 and $75. Once it went higher, I was out of the running. And I'm glad that bidders moved it quickly up in price so that the thread didn't have 50 posts bidding the card up incrementally.
But once the card got close to its ceiling, I don't see really see an issue with people using the stated minimum bid to jump into the lead. Should the final bidder at two minutes prior to close spend an extra $25 on the card just so not to insult other bidders? There was also the chance that someone else could have jumped in and out bid him in the last minute as well.
B/S/T auctions aren't perfect, but I think they are fun and it's nice to see some cool cards get put up for bid. The one thing about ebay is that you can put in a large max bid, but not have to pay that amount unless another bidder brings the price up to that max. That is not possible on the B/S/T auction section (although Frank's suggestion would work in this situation).
Sorry for the long post, I was just thinking about the situation and had about five changes of heart while reading the thread. Happy bidding!