I think both of the arguments are valid to some extent.
I am pretty sure that Ganguly's performance has not been upto the mark in recent times. It is not just about batting, take other aspects of his game. His fielding is lately considered obnoxious, not even international standards. His running between the wickets is considered very bad...infact, this has created rift between himself and other palyers like laxman. Even in a short span of 3 innings now, he did it yet again!! I am talking about the run out!!
Also it is perfectly logical to encourage younger players and give them an opportunity, they can not be expected to play just domestic cricket all their lives while older players are included just on the basis of past records. This also harbors a feeling of security and being indispensable among players which is very derogatory for team performance. Such players, whether performing or not are very confident that they have a secured berth in the team.
However, having said all that, I am still a little unsure about this act of inclusion for a match and then firing. Even if the argument about appeasing the crowd is valid, it is neither justice to ganguly and nor to the other players. It is also right that no one can be judged for a performance in a single game. Even if it was right to drop him, the manner in which it was executed is wrong.
cheers,
~vivek