I find myself looking at this issue from several viewpoints. When I build models I'm a hobbyist; when I teach courses and read and write books and articles I'm a professional academic. In that capacity I feel professionally and ethically obligated to cover any historically important point, pleasant or otherwise, that's connected to the subject under discussion.
I once heard a parent of a high school student launch into a diatribe against her kid's English teacher because (she said) the teacher was trying to convert her kid into a war monger by requiring the class to read All Quiet on the Western Front. (The parent thereby demonstrated, among other things, that she'd never read the book.) My response (ignoring for the moment the fact that it's one of the most eloquent anti-war testaments ever written) was, "I'm a military historian, and I don't think wars are nice things. I also don't believe in wife-beating. Does that mean I should pretend it doesn't happen?"
I understand Katzennahrung's observation about the emotional associations that go along with the swastika - and I think he has a legitimate point in making a distinction between such institutions as museums, on the one hand, and recreational events on the other. Surely we can agree that the Second World War and the Holocaust - and, for that matter, 9/11 - are events that should be remembered. But there's "remembering," and then there's "glorifying."
At the hobby shop where I used to work we had a couple of customers who bought all sorts of American and British WWII aircraft and armor kits and painted them in crudely-rendered German markings. The two of them apparently spent a great deal of their time building big, strange dioramas around vehicles with German markings. Asked why, for example, they were showing off photos of a Sherman tank with black crosses and swastikas painted on it, they sort of smirked knowingly and said, "it got liberated." I was never sure how seriously I ought to take these characters. Mostly they gave me the creeps.
I'm afraid Nazism does have a certain attraction to some people today. (For several years we had a middle-aged student at our university who refused to take exams on Hitler's birthday.) I don't want to think of the hobby industry as encouraging such people - and I don't think the hobby industry intends to do so.
Such issues come up in unexpected contexts. Some years ago I was thinking about building a model of the steamboat Virginia, a lovely old vessel that used to run between Norfolk and Hampton carrying passengers who'd gotten that far on the C&O Railroad. (That's one of the many projects I've never quite gotten around to finishing.) The Virginia, like all other modes of public transportation in most states of the American South during the late nineteenth and early twentieth centuries, was required by state law to maintain "separate but equal facilites" for "white" and "colored" patrons. Visible quite clearly in photos of the ship are signs reading "Colored Passengers' Lounge" and "Colored Water Fountain." I showed the photos and the ship's plans (which also identified the "Colored Crew's Quarters" and "Colored Showers") to an African-American member of the model club I belonged to at the time. I said, "John, I'd like your opinion on something. If I build this model should I or should I not put those signs on it?" He thought about it for less than a second before answering, "Absolutely. I wouldn't be offended by them - and I might argue with you if you left them off."
I guess my inclination in dealing with this sort of thing is to vote with my feet. If I came to an IPMS competition and found that somebody had built a diorama depicting a Nazi Party rally in a glorifying context (I've seen that happen, as a matter of fact), or, for that matter, a diorama depicting the aftermath of 9/11, I don't think I'd be inclined to urge that the builder be arrested. I would, however, turn my back on that particular exhibit and walk away from it, without dignifying the builder by speaking to him.
All this is highly personal. Somewhere or other each individual has to decide on his or her position - on the issue itself, and on whether the government should be involved in it. It's certainly a good topic for discussion in a forum like this one. I'll be most interested in reading what other members have to say about it.