I haven't read a lot about the movie itself, but is there any reason why this exact same movie couldn't have been made, but without using a real-life dictator in that role?
One of the main satirical aspects of the film is to ridicule things that are actually happening
in reality. Like the joke you can see in the trailers about Kim Jong-Un never having to go to the toilet, for instance. It's something his grandfather (Kim Il-Sung) actually said in his memoir:
"My grandfather's opinion was this: If pupils peep into their teacher's private life frequently, they lose their awe of him; the teacher must give his pupils the firm belief that their teacher neither eats nor urinates; only then can he maintain his authority at school; so a teacher should set up a screen and live behind it."
It's meant metaphorically of course, but later witnesses (North-Korean defectors) actually declared that they did actually believe this stuff litterally.
"To my childish eyes and to those of all my friends, Kim Il-sung and Kim Jong-il were perfect beings, untarnished by any base human function. I was convinced, as we all were, that neither of them urinated or defecated. Who could imagine such things of gods?"
Anyway, I'm just mentioning this anecdote to point out that the comedy is (mostly) completely grounded in reality, which is also confirmed by Rogen and Franco. That's why they probably, "artistically" chose to set this film in a comical version of real life. It makes everything more effective (both the comedy and the satire).
Now, I get that they could've just pulled a Chaplin ("Adenoid Hynkel") and renamed the dictator and country that they were targetting, but in essence, this shouldn't really matter.
Now, I get that many people are thinking that this stupid film isn't all that important and that they could've just toned it down a little bit to avoid controversy, but that's not really the point.
The real issue I'm having with this whole situation is that terroristic threats limited our freedom today (it probably sounds overly dramatic, talking about a Rogen/Franco film, but I don't care). I understand why the theater chains and ultimately Sony pulled the film (they have their valid financial and ethical reasons), but I simply don't approve of the implications that go with it.