I have been following this in the Arizona Republic and it seems it was started by one of the bar tenders and blew up into somewhat of a he said she said type of things. I don't think either side wanted what happened but it appears getting the lines of communication back up are hampered by all the press over this.
Tempe of all places is very laid back because it is a college town and with all the students running around they have to be pretty open. When I went to school there, you could find head shops and anything you might need for the hippy generation. Most of those buildings have been torn down and the neighborhood upscaled but the attitude of the town remains. I doubt if there is much prostitution in the town mostly because the student couldn't afford the services and it's far simpler finding another student with the same desires.