I think the rule needs to be clarified. If a QB goes to the ground or his knee touches the ground in the backfield for any reason, the whistle should be blown and the play be over. (That's different from a "kneeldown," where the rule says that a kneeldown occurs if the QB "immediately goes to his knee" after the snap.)
I've watched that tape many times and, if Manning was faking it, he's got it down to an art form, as you could call it either way. In general, I am not against a team or player pushing the rules to the limit (remember the Ravens game last year ), but if he was intentionally faking it, then as a QB, he was abusing a rule that's designed to protect the QB.
That's a loophole that should be closed. Even if the QB in the shotgun just falls down catching the snap and there isn't a defender within five yards of him, the play should be dead.