Definitely bad. Of course, that depends on whom you ask :) and which Russian we're talking about.
NK-33 is used on a recently created Soyuz-2.1v rocket (one engine on first stage). There is no production of NK-33 today in Samara - but the ability to sell engines to the West would oh so much improve economic situation for Samara's industrial space cluster. Among other things, NK-33 is a matter of pride in Samara. It's the only engine maker for first stages in Russia (if you don't count Voronezh'es LH2 engines, used on the second stage of Energiya) other than Energomash, its arch-rival. Since recently works are underway to restart the production of NK-33... and Orbital going away from using them, for whatever reason, is sad news.
Still NK-33 is a great piece of technology, in some aspects still unsurpassed. It's too early to consider it's over for NK-33.
As for politics and sanctions against Russia - this is quite different subject, almost completely unrelated. Leaders come and go... and people stop wars at some point, yet the aspiration of going to the stars remains.
Considering the funding for these missions comes from the U.S. Congress, the matters seem pretty tightly coupled.
It was sure a topic of conversation when Elon Musk and Michael Gass (ULA CEO) testified before congress:
So, as a general comment, something bad happened with the gear that pumps fuel into the engines in the right proportion. Maybe involving a major leak of fuel into the structures around the engine. Leaked fuel explodes. Complete loss of thrust, rocket falls back to earth.
I wonder if the Russians would consider it a good or a bad thing for them, if the West decides to stop using those Russian-built engines? Specifically, who benefits if there's a series of failures of AJ-26 engines? Considering the current imposition of economic sanctions against Russia, based on quite untrue accusations related to Ukraine and MH17. The Russians are feeling considerably put out over that, and rightly so.