Me, I blathered about this yonks ago, but what the fuck, let's give it another bash.
With a little qualifier that I'll come to, Gabaldon is right on all three counts, as I see it, when she says, " I think it’s immoral, I _know_ it’s illegal, and it makes me want to barf whenever I’ve inadvertently encountered some of it involving my characters." This doesn't mean I agree with the fanfic-haters though, simply that if you pay attention to what she's saying, it's hardly a big deal. (I'm ignoring the point-by-point argument where she addresses what comes across as something of a Straw Fanficcer, to be honest, because... yeah, whatever.)
1. She can't be wrong about her own response; she's just reporting her reaction. That may not be palatable to fanficcers, but them's the breaks; some writers are just going to see any derivative work based on their creative output as... like a bad disco remix of "T.V. Eye" sung by Madonna. Deal with it. She is entitled to spew bile at the stinky turd you left on her doorstep as a present. If your writing is shit, don't expect her to be all "Gosh! For me?!" She is entitled to spew bile at the stinky fromage you left on her doorstep. If your writing is cheesy, many will like it, but her writerly stomach may turn at the gut-wrenching Gorgonzola stench of a Mary Sue. She's even entitled to spew bile at the stinky perfume you left on her doorstep. Your writing might be kinda sweet, delicately nuanced, quite lovely to many, but if it's based on hers all she's gonna smell is the stuff you've done to it that's just plain wrong, far as she's concerned. So you took a professional perfumier's scent, watered it down and chucked in a ton of vanilla extract. If it gives her the boak, that's tough titty.
2. She's not wrong that it's illegal; that's the actual law. Again, that may not be palatable to fanficcers, but again, them's the breaks. Published fanfictions are derivative works that infringe copyright legislation unless a) permission has been granted by the original writer or, assuming a US context, b) the reuse is sufficiently transformative that it counts as fair use, for values of transformative and fair use that are defined by the courts. Is there a grey area here? Not much of one. Parody is generally considered fair use, but homage is not. Fanfiction is not considered sufficiently transformative because it's basically unlicensed tie-in/spin-off fiction. Doesn't matter if you're selling the work or slapping it up on an interwebs forum. Doesn't matter if you carefully credit the original writer. Doesn't matter if you're not directly plagiarising the text but just using ideas -- characters and settings -- that "can't be copyrighted." If you're publishing a derivative work without permission, you're breaking the law. Don't fool yourself.
3. To say that she thinks it's immoral is a perfectly accurate report of her own ethical judgement. That "thinks" is contrasted with the emphasised "know" precisely to highlight the fact that this is a personal and subjective evaluation: that fanfiction is illegal is a fact; that it's immoral is her opinion. You might well disagree that opinion, but her expressing it is... well, the kinda thing writers do on their blogs. Go figure. Of course, this is where my qualifier comes in, because as far as I'm concerned she really ought to have said "unethical" rather than "immoral" for that subjective judgement, because "immoral" has a somewhat absolutist ring to it. And it's really about societal judgements rather than individual ones.
See, far as I'm concerned, mores are factual -- societal conventions of what's right and what's wrong, dicta that can be objectively verified as being part of the consensus or not part of the consensus. While the ethics of fanfic might be a matter of individual opinion, the morality of fanfic is a question of whether the culture-at-large accepts it or not. The question of whether it's "immoral" or not isn't a matter of whether it's really right or wrong, so much as it's a matter of what society's mores say about it. The reality? The culture-at-large is divided, with one community holding to mores in which fanfic is fine and dandy, one community holding to mores in which it's deeply transgressive. Outside those communities, the culture-at-large... kinda doesn't have much of an opinion on it at all.
So, OK then, how to navigate that conflict of mores? If she thinks it's unethical, and you think it's ethical, is there any way to break it apart and negotiate the minefield without everyone blowing up?
Well, first things first: to be honest, if she doesn't welcome fanfiction of her work, I'm inclined to think she can only be right about its ethical dubiety... when it comes to fanfiction of her work, that is... mostly. I mean, it's her call what is done with her fiction, including the characters and setting. The work is made public on the proviso that it remains her call (within the limits of fair use,) with the contract between the artist and audience set out in the copyright notice and the legislation it refers to. To publish an unlicensed derivative work is to breach that contract, and breaching an agreed contract like that is just plain old-fashioned bad form. That's a no-brainer, surely. I agree to do X as long as you agree not to do Y. I do X. You go ahead and do Y anyway. That makes you a prick.
Excuses can be made for ignorance, of course, (hence the "mostly") but not for willfully oblivious entitlement; that's also bad form. If you didn't realise you weren't supposed to do Y, you're not a prick. If I go all frowny and tell you, "Dude, you can't just do Y like that; it's recognised as bad form to the extent that it's written into the law," a response of "No, it's not; it's a legal grey area and you have no right to expect that of me," is kinda prickish again. The more defensive smokescreens you throw up, the more it comes across as an obstinate rejection of the writer's viewpoint, reeking of self-interest and disdain.
Put it this way: Any work of fiction is a service that's offered with terms and conditions. By default, as the law stands now, when you use any such service you're agreeing not to publish a derivative work based on it without permission, unless your reuse is sufficiently transformative. You're agreeing not to set up your own purely imitative service, unless the creator says you can. Not properly getting this because you don't understand the ins and outs of copyright, you might blithely break the agreement, set up an imitative service and, in doing so, break the law and piss off the original creator. But hey, you didn't realise, you even did it out of love, so it would be kinda churlish to decry you as a horrible person, right?
Some creators might even take it in the spirit it's intended -- as an act of tribute, a homage. Some will turn a blind eye as long as it's not done commercially. Some may even appreciate and encourage it. That's their prerogative, their permission to grant, by silent acquiescence or explicit acceptance. But that agreement is not a given. It's not the rule but the exception to the rule, and there's enough writers out there in the Gabaldon/Martin camp kicking up stinks about the legality that really you have to be pretty naive for it to go over your head for any period of time. And if you respond with bald-faced denials, that's just refusing to recognise the agreement at all, refusing to recognise, in fact, the creators right to offer that service on those terms and conditions.
Now, bear in mind, I don't include myself in the Gabaldon/Martin camp. You can throw all the justifications for fanfic at me and I'll probably just agree with them. But where pro writers are down on fanfiction, often it comes from a legitimate concern with the ultimate effects of their work as it has been reused in your fanfic. The whole "my characters are my children" line is a little precious for my liking, but even taking a less personal approach, characters and settings are powerful tools, and a writer doesn't have to let those carefully crafted tools be put to uses they don't approve of. You are not simply entitled to reuse the service they've provided you in a service you provide to others because of this. You might do something they find profoundly objectionable, and by providing you with the tools to do it, that makes them feel partly responsible.
If someone did some sort of inverse slash with my own Jack and Puck characters -- co-opting them into a personal fantasy and straight-ironing them in the process, turning them hetero -- this might well annoy the fuck out of me. Co-opt my queer fiction to a heteronormative agenda and damn right I'm going to be pissed off. Weave a right-wing subtext through it and of course I'm going to get grouchy. As a certified Sodomite, attuned to homophobic undercurrents, I'm intently aware of subtext in narratives, how superficially fun and fluffy entertainment can carry the dodgiest of messages. Racism and misogynism can be hard not to code into narrative. It's only a small step from a tongue-in-cheek anarcho-terrorist who Blows Shit Up without thinking things through to a narrative that glorifies "righteous" violence without the author thinking things through. Point is, I feel a social responsibility not to propagate unethical messages, and that extends to not wanting my characters and settings to be vehicles for them in the hands of others.
It's a moot point with my work, right enough. I'm not likely to have to worry about that any time soon. And, hey, if I haven't addressed any of the arguments made in support of fanfiction, it's largely because I don't actually dispute most of them. I just thought I'd fire my own two cents into the kerfuffle.