Then I don't see how him being a moderator can be an issue. He will always be the Ultimate Mod.
If the question is whether or not he should exercise his rights or to what extent, that's a bit different.
Knappster already stated he wasn't going to moderate the vendor section. I would think that's enough.
I imagine only competing vendors would really worry about unfairness, but I think they should remember that one of their competitors is allowing them to advertise on his site and they should act accordingly. i.e. Don't bite the hand that feeds you.
I'm sure the other Mods will step in if needed.

A note under his UID (whichever one he chooses) that says 'Site Owner' might clear up any questions any of us newbs have.