I don't personally believe in any form of censorship.
In terms of it's effect on the kid...
Well, it obviously isn't going to make them kill people, if it does, we have a names for that... schizophrenia, psychopathy... take your pick
As for their own personal health, if it disturbs them then they'll just stop playing, if it doesn't, then what's to worry about. Last I checked, one needs to experience trauma in order to be traumatized.
I admit that if my 7 year old was playing and enjoying God of War, I'd be concerned. But I wouldn't take it from him/her, I'd just talk to them. If I took it, not only would I be depriving them of something they liked, but I'd make them obsessed, paint myself as a prick and hurt the relationship. If they're honestly getting off on hurting what they perceive as people, then is making them feel ashamed or angry, and depriving them of an outlet really going to help them?
So I say... yeah, it's really not that big a deal. Making mistakes and getting hurt sometimes is part of life. You can't teach people life's hard lessons, they have to learn them on their own