I think its undeniable that Malaysian minorities suffer a form of negative discrimination ( a kind of reverse affirmative action) when compared with the majority. And factually, it would be quite hard to counter-argue what LKY said about Chinese minorities being politically defanged as in Indonesia and Malaysia. So far at least from the mainstream media - most seem to denounce the comments as inciteful and dangerous, Most Malaysian Chinese however secretly seem to be in profound agreement with LKY - namely most are disappointed that Badawi seems to have extended the priviledges in the NEP without any signs of a change in policy. LKYs comments came right after several incidents that made the Malaysian Chinese community feel vulnerable esp. after the PM's son-in-law and head of UMNO youth made comments about MCA (the Chinese party in Barisan national) as well as a concerted effort by some UMNO youth members to get rid of a Chinese politican in Penang on charges of not doing enough for the Malay population there. I doubt most Chinese would disagree with LKY about the marginalisation of Chinese.
Personally, I think the marginalisation proceeds from a policy of appeasement by the Chinese community given that they have given up most of their political presence in order to safeguard their economic interest especially after the race riots in May 69. However currently they too are finding their economic positions being under attck due to corruption, biased quotas on licenses and being muscled out on govt contracts. No doubt the Chinese community (the wealthy ones at least) mantains its economic position through buying off politicians in order to obtain contracts and cheap loans but for most of the rank and file - their economic superiority is decreasing. I see very little that can be done currently however - but a current of discontent has always been present.
I think the political reactions are quite predictable - a delayed grudging apology on LKY's side, Badawi acting as the moderate good guy while more fringe elements of UMNO making loud noises about Singapore's treatment of its own Malay minority. Nothing suprising there - the newspapers make all the right noises mixing nationalist puff-talk while ignoring the biased accounts from their own sides. Politically nothing much has changed except the continuous illustration of the fact that regionally we remain below the standards of political civility and that we cannot transcend playing the race card and prefer to enflame its attendant suspicions. Though LKY started the whole incident, discrimination was and continues to be a problem in Malaysia - the roots are complex including the fact that Chinese politicans and businessmen (sometimes they are interchangeable as those that fuel continued corruption.) It disturbs me that because we unable to transcend such dialogue - we may be fated to realise its consequences in increased and more dangerous regional tensions.
As usual the Singaproean press was completely muted over the apologies demanded by the Malaysians and the Indonesians. I just think that even though LKY might be speaking the truth it was probably an unnecessary comment that adds to strained relations, esp. considering that its coming from an 82 year old man who should be finding better things to do during his retirement than to inconvenience his son's government by inflaming sentiments around the region.