Yes, the government admitted that they had two corrupt officers on the investigation. They were being investigated at the time and the government actively covered it up. They admit this freely - in fact they have made the charges in court. The appeals court judge cites their reasoning in the denial, saying that it was proper to keep the proceedings of the grand jury secret, despite the defendant's right to a fair trial.

The "alleged" part would be Ulbricht's assertion that they were blackmailing him an threatening to frame him.

Some of the behavior of the legal system in this case is scary. It seems to me that they are really worried about this internet thing being used to sell drugs, so they are going to collect a few scalps as a deterrent, come hell or high water.

Here's a write-up of the appeal from the point of view of "holy crap, this is bad for freedom". [slashdot.org] The scariest point the writer makes is that the appeals judge hints that the justification for the overly harsh sentence of "life without parole" is that the defense team made the argument that the war on drugs was a bad thing with negative consequences.

Here's a bit from the decision:

In this case, a reminder of the consequences of facilitating such transactions was perhaps more necessary, particularly because Ulbricht claimed that his site actually made the drug trade safer, and he appeared to contest the legitimacy of the laws he violated.

The government argued that he deserved a harsher sentence because they alleged that they could trace 6 deaths to drug overdoses from Silk Road purchases. His lawyers countered that by providing a community rated marketplace he made the drug trade safer for users, mitigating this harm and providing a net benefit. The judge is saying that this claim makes it important that the court administer a harsher sentence.