Ron gets a filthy no-prize for bringing us this quick review of the unforeseen difficulties involved in hosting a first-world event in a third-world country.
Optimizing an economy for maximum growth requires minimal regulation, especially of the environment. Eventually, as average per-capita income rises to a certain point*, people will start demanding a cleaner environment, and pollution controls can (well, should) be gradually introduced. Unfortunately, while China is rapidly getting a first-world economy, it's definitely not there yet. Equally unfortunate, the requirements of effete first-world left wingers run right up against this reality, and so China has a potentially intractable problem on its hands.
This is most likely worrying China's leadership far more than you'd think. China as a country is almost psychotically obsessed with getting this chance to prove they've "made it" right. They take it extremely seriously, and should it fail I'm not quite sure what would happen. It's probably not too far fetched to picture riots and revolutions. Certainly that's what the leadership must fear.
The ironic thing is the air pollution in Beijing is almost certainly no worse (probably better) than that experienced by the athletes of the first few Olympiads. One need only read about conditions in turn of the last century London to understand this.