To help you all understand the incident better, I decided to type out what I know.
This is the best translation of the lyrics to English that I can find with explanatory notes.
http://monkeywong.com/2007/07/18/i-love-my-country-negarakuku/Strictly speaking, the song IS NOT a mockery of the national anthem. There are many ways to compose a new song, one of them is called sampling, this is for a song to have different kind of effects. In this case, the song selected as a source for sampling is the national anthem. But the point is, the national anthem ought to be respected, so during the composition, the melody and lyrics of national anthem were UNCHANGED, these two properties were preserved completely. On the other hand, the author made a change to the musical form or style, from the traditional form to blue R&B and rearranged the tune. THIS IS ALLOWED, and had been done by many musicians on several occasions especially on National Days. The original meaning of national anthem sample inside the song Negarakuku is completely preserved. In other portions of the song, although foul language has been used, it tells nothing but truth. Therefore there should be nothing wrong or illegal.
The song IS NOT a mockery of Islam. If you look at the lyrics, you will find the only parts that have anything to do with Islam is where he says some Muslims pray / sing Al-Quran out of tune or like cock crows in the morning and he states the fact that Malay women usually wear headscarves. In some sense, he insulted some Muslims which he already said sorry. But I don't see why this is an insult to the religion itself.
So be informed, be open-minded, don't be deceived by Malaysian government and newspapers (all government-controlled).