The use of the gi is not what was controversial about that stoppage. MaliSlamusrex used a video illustrating validity in the stoppage while trying to state that it wasn't legit. Many people feel that Royce was not being choked, and the fight was stopped because Yoshida was in a position to sell the win. The use of the gi was permitted, as it was when Gracie faced Shamrock.
He didn't just try to put it back in, he lifted it nearly to his shoulder. To grab a leg, wrap it, pull it, and lift it all while he knows a takedown is being attempted, without stopping the action or even giving warning is pretty bad. But yes, the Yoshida debacle was worse; Royce showed the world what was what in the second fight.