Some excellent points from everyone so far. I can't call this a summary, but I think it's very thorough:
I think the key concern here is that parents want to know what they're buying. This particular case may be a big fuss made over nothing, but the fact that her doll/DS game/DVD says something she don't expect has probably put her on the defensive as a parent. That's understandable. It's the manufacturer's responsibility to make sure their products perform as intended and that means making sure no unintended statements are being conveyed, be they political, religious, philosophical, or otherwise. It would be another issue entirely if the phrase showed up in a product that was specifically marketed to be pro-Islam or about a muslim family, since there would be a well-understood context. I do know that Nintendo of America goes out of its way to filter out religious content in their games simply in an effort to avoid the issue. That is why we will never see an official release of Devil World (Famicom) on the Wii Virtual Console.
As for the clarity of the phrase in question, I think we have to remember that young children are still forming their understanding of the world and their potential interpretations of a phrase is a valid concern. A developing child needs clear messages about its world, and providing that is a burden we place solely on the parent: not on media, community, or government. It's true that at some point, we must begin to make our own decisions, but before children hit that poorly-defined point, the parent is the legal guardian and has sole discression over what the child is exposed to.
With that said, I can't say I'd personally have a problem with the phrase "Islam is the light", but religion is definitely a concept I would want to introduce to my kids on my own terms.
Finally, I think this news story goes off a bit half-cocked. They should've waited to hear from the game developer so we could at least get more of an explanation of the intended nature of the phrase. It could be honest gibberish for all we know. Babies DO speak gibberish. It's also hard to assess the clarity and interpretation of the phrase without bias because the news story conditions our minds with a suggested interpretation. Conditioning makes you more sensitive to a pattern, whether it's there or not.
Thoughts?