Brigham Young is a Mormon University, and as such they have to fit within the standards of Mormonism. As such, the students are expected to adhere to the morality of the university, not the other way around.
As for the player, he voluntarily told school officials that he violated the conduct policy. Davies displayed exceptional strength of character. You might think he is an idiot for doing so, knowing what the consequences could be, but the fact that he was willing to volunteer the information marks him as a far better human being than most.
Brigham Young should also be commended for sticking to its guns. They chose integrity over sports success. How many schools would simply have hushed up something one of their star athletes did to break the rules until after the Tournament was over? Hell, if Davies were a Buckeye, and broke one of OSU's rules, he would be suspended NEXT year, so as not to interfere with the good season this year. Unfortunately, there are a lot more schools like Ohio State and less like BYU, where the almighty dollar of the sports programs is more important than honesty and integrity.
How could Brigham Young ever recruit athletes?
Because some people would prefer to go to a religious college. It isn't rocket science. I am not a Mormon, but I get BYU's position. I went to a religious college in Michigan that had a similar morality code. Plus, its not like there aren't other schools that do it. You think Notre Dame or Texas Christian don't have similar policies? Not necessarily identical, but as Christian schools themselves, they would also have conduct codes for students.
HERE WE COME NIT!