It is bias, an objective person would see that Hodge could have had a reasonable international career in all formats in another time or another country, a Victorian is up in arms in outrage!
Hodge is not alone, Phil Jacques and Phil Hughes have had equally brief but competent test careers. Sometimes you're just in the wrong place at the wrong time and can't fit into a team. Players often get into the team because of injuries, knowing that there's little they can do to keep the spot once the injured player returns. Hodge is unlucky that he had to compete against an amazing array of middle order batsmen for most of his career. You would never pick Hodge for a permanent spot in the middle order ahead of the likes of Langer, Ponting, Waugh, Waugh, Lehman, Martyn, Clarke or Katich. Of course Hodge is not far below (if not equal to some) the level of these players, but it makes no difference to the side, you could interchange them and it wouldn't overly matter. He wasn't robbed of anything, he was unlucky to exist at a time where he was competing against such a rich crop of cricketers. Australian cricket would not be any better/worse for the last 10 years with or without Hodge.
As a T20 player, he lacks the firepower to be a matchwinner on an international level. There's no point getting rid of Clarke for someone like Hodge. Hussey x 2 and White are much better middle order T20 players and Warner/Watson is a great opening combination.
He should be in the 2011 WC squad, his domestic form is un-ignorable and might even be a big player if there is some spillover from losing the Ashes on the likes of Ponting and Clarke. ODIs are largely irrelevant so I don't see a problem picking the best squad to achieve short term goals like the WC. Of course this is still no guarantee, as his insistence on lambasting the selectors at every opportunity has clearly resulted in a blacklisting.
I agree that selectors are too conservative - especially in the last 4-5 years when its been clear that we would eventually lose our edge over our rivals.