I trust in God
I love my country
And will respect its laws
I will play fair
And strive to win
But win or lose
I will always do my best
— the Little League Pledge
The Ethics Scoreboard article gives a good summary of the sequence of events, but I'll see if I can summarize the larger issue in a few words. Under the rules of Little League baseball, every player on the team must play in any game, or else the team forfeits the game. In baseball, the length of a game is not fixed; it is not a fixed length of time, and it is not even a fixed number of outs, because a team will not take its last at-bat when it is already winning. The "Mercy Rule" in effect in many Little Leagues is a further aggravating factor.
The upshot is this: under certain circumstances, a team can lose a game by forfeit if it scores or prevents the opposition from scoring; or conversely a team might win a game by forfeit if it deliberately allows or deliberately fails to score runs. So under the rules of the game, striving to win is sometimes the opposite of doing your best.
In this case, the team in the field was trying to allow a run, and the team batting was trying not to score one! Unethical behaviour? Sure. A very bad set of rules? Definitely that too.
You simply cannot have a rule that rewards competitors for playing to lose. Don't get me wrong — I like the idea that everybody gets to play, and I applaud the sentiment underlying that rule. I also understand that winning isn't everything. But really, it wouldn't be that hard to tweak things a bit. For example, let the coach satisfy the participation rule by putting players in the field for an inning. Or, if it's about playing and not about winning or losing, why not let the kids play the full six innings, no matter who's winning?