If I bring down a hammer into her square, would her free action quake proc this special?

No, in fact, Katana would not get a free quake from the book at all.

Wow, that sucks! Where does it says that? I searched the rule book and couldn't find that.

From the Players Guide:

It's in the Player's Guide, on page 5 under Powers/Abiities.

And for new players I am going to remind them all that
final authority on all rules decisions is up to each venue Judge.

If there is a rule that you think does not make sense,
talk to your Judge and find out if your venue actually wants to play it that way.

I'm against house rules that change how the game is played, but this answer is acceptable as long as a house rule is clearly worded when a Judge/TO "advertises" their tournament.

If the Judge is just ruling this way without players knowing it is a house rule, then the Judge is ruling incorrectly.

A venue should always post any special rules they follow as house rules so that potential new players will know what to expect when going to a new venue for the first time.

Yeah I've got a friend who constantly travels and plays at different locations and there are many places he will ask about house rules then when he gets there they are ruling them differently and they know the correct ruling it's just they house rule it this way. Really ticks him off when he builds a team based around something then in the middle of a match gets told otherwise.

House rules should not change the actual rules of the game unless it's for scenario purposes.

House rules should generally be more structure specific than rule altering. Saying no pieces with Indom (or Indom is treated as if it didn't exist) is a good house rule. But saying that Indom only works when pushing due to your own action (it has no effect against Incap or similar) is a bad constant house rule as it changes the core of the game.

I may not like that I can't use a relic along side my resource but I'd be pretty mad if I should up to another game store and that rule was thrown out the window.

I suppose I fixed it. ( for the venues that want it fixed )

I am not trying to derail this or start something. Why would some venues want that fix? I think it a good rule. It is balance and doesn't allow misuse of powers.

I really hope the new rules team is going to revisit this rule and just how insanely stupid it is.

Two things

1. I love your sig. It is a really good comment
2. I agree. It is counter-intuitive.

A better way would be if you can already use something you must choose one effect to use. At least this way a person with smoke cloud could use the goodies in the smoke pellet pouch instead of being unfairly saddled with a burden. I ended up shafted when a character I was using had picked up Doc Ock's arms. I guess because I am already perplexing I cannot coordinate the arms well enough. Katana's case makes sense where you pick one or the other. She can either slice a whole bunch of people really well or BOOM goes the dynamite with a landing magical hammer

Because many people feel that it is counterintuitive for a figure to be "punished" for already having a power. It would simplify things tremendously to just let the player choose the source of the power as long as powers weren't being intertwined.

That's a good way to completely break the game. Majority of players usually have no sense of balance or design. I can't tell you how many times players have complained about something (not just this game) due to lack of understanding of the rules, concepts, or even strategy.

Would you want your venue to allow multiple instances of damage reduction to stack because that's what the majority players want? How about eliminating first round immunity? Duplicate powers from different sources? Multiple resources? I can go on and on about things majority of players would be more than happy to change or eliminate without realizing the repercussions.

Feel free to mess with the rules but don't complain when the actual game elements stop meshing with how you play the game.