I forgot a third possibility - which would be that Rashid's completely nuts AND a victim of unfair persecution. This could also be true.
Anyway, upon researching this news a little further, it looks like only one player was injured, and he was hit on the finger. When this happened, Rashid rushed out and pleaded with the umpires to halt the match. When the umpires refused, he conceded the result. I can't find any commentary that agrees that the pitch was as dangerous as Rashid claims, although the fact that all 4 wickets fell to LBW decisions may suggest that there was variable bounce.
In case anybody's unaware of Rashid Latif's history, he was lauded as having "lifted the lid off match-fixing" when he played an active part in the exposing of some unsavory activities by Salim Malik and others. Since then, though, he's been a little patchy, with allegations of selection bias (could be true - but the evidence he said he'd collect and present never eventuated), being banned for 5 matches for wrongly claiming a catch in a game against Bangladesh, and accusations by Adam Gilchrist of having made a racial slur. More recently, he alleged that the fourth ODI vs India in Pakistan this year was fixed.
But even if Rashid's fears about the pitch were unjustified, it seems like there's no precedent whatsoever for such a penalty - in fact, everything in place for such an event (conceding a match) seems to be directed towards a team rather than a captain, and competition penalties rather than personal bans. Obviously the PCB has an axe to grind over some of his past behaviour.
To me, he does come off like he has a screw loose, to be honest. But the way the PCB has treated him seems manifestly unfair.