So yeah they decided against it.
http://www.cbsnews.com/stories/2011/06/27/national/main20074669.shtml
Official words on the matter (warning PDF)
http://www.supremecourt.gov/opinions/10pdf/08-1448.pdf
From the sounds of it it was apparently a bit too broad and vague, they have suggested a more focused law could get through.
I've not really made secret that I see nothing wrong with enforcing ratings on games, but meh you guys like to get in arms if someone mentions the word "first" and amendment together.
I do think the "devs will tone down games" claim a bit silly given GTA n Manhunt are UK made. (oh that's a general "internet commenter" thing, not something in the pdf)
So yeah, you can sleep safely tonight knowing that kiddies can play COD alongside you on XBL.