Why is Nanavira considered controversial?

1) He's a heretic.

He viewed 'birth' & 'death' in Dependent Origination as the self-views of 'my birth' and 'my death' (which makes him a heretic to the cultural Buddhism of the world; which believes in Buddhaghosa's three-life-time idea).

He also questioned the common intepretation of the sankhara link, below:

5. Let us now consider sankhārā, which we shall make no attempt to translate for the moment so as not to beg the question. We may turn to Nidāna/Abhisamaya Samy. i,2 for a definition of sankhārā in the context of the paticcasamuppāda formulation. Katame ca bhikkhave sankhārā. Tayo'me bhikkhave sankhārā, kāyasankhāro vacīsankhāro cittasankhāro. Ime vuccanti bhikkhave sankhārā. ('And which, monks, are determinations? There are, monks, these three determinations: body-determination, speech-determination, mind-determination. These, monks, are called determinations.') But what are kāyasankhāra, vacīsankhāra, and cittasankhāra? The Cūlavedallasutta (Majjhima v,4 & cf. Citta Samy. 6 ) will tell us. Kati pan'ayye sankhārā ti. Tayo'me āvuso Visākha sankhārā, kāyasankhāro vacīsankhāro cittasankhāro ti. Katamo pan'ayye kāyasankhāro, katamo vacīsankhāro, katamo cittasankhāro ti. Assāsapassāsā kho āvuso Visākha kāyasankhāro, vitakkavicārā vacīsankhāro, saññā ca vedanā ca cittasankhāro ti. Kasmā pan'ayye assāsapassāsā kāyasankhāro, kasmā vitakkavicārā vacīsankhāro, kasmā saññā ca vedanā ca cittasankhāro ti. Assāsapassāsā kho āvuso Visākha kāyikā, ete dhammā kāyapatibaddhā, tasmā assāsapassāsā kāyasankhāro. Pubbe kho āvuso Visākha vitakketvā vicāretvā pacchā vācam bhindati, tasmā vitakkavicārā vacīsankhāro. Saññā ca vedanā ca cetasikā, ete dhammā cittapatibaddhā, tasmā saññā ca vedanā ca cittasankhāro ti. ('But, lady, how many determinations are there?—There are, friend Vis&aacuute;kha, these three determinations: body-determination, speech-determination, mind-determination.—But which, lady, is body-determination, which is speech-determination, which is mind-determination?—The in-&-out-breaths, friend Visākha, are body-determination, thinking-&-pondering are speech-determination, perception and feeling are mind-determination.—But why, lady, are the in-&-out-breaths body-determination, why are thinking-&-pondering speech-determination, why are perception and feeling mind-determination?—The in-&-out-breaths, friend Visākha, are bodily, these things are bound up with the body; that is why the in-&-out-breaths are body-determination. First, friend Visākha, having thought and pondered, afterwards one breaks into speech; that is why thinking-&-pondering are speech-determination. Perception and feeling are mental, these things are bound up with the mind; that is why perception and feeling are mind-determination.') Now the traditional interpretation says that sankhārā in the paticcasamuppāda context are kamma, being cetanā. Are we therefore obliged to understand in-&-out-breaths, thinking-&-pondering, and perception and feeling, respectively, as bodily, verbal, and mental kamma (or cetanā)? Is my present existence the result of my breathing in the preceding existence? Is thinking-&-pondering verbal action? Must we regard perception and feeling as intention, when the Suttas distinguish between them (Phuttho bhikkhave vedeti, phuttho ceteti, phuttho sañjānāti... ('Contacted, monks, one feels; contacted, one intends; contacted, one perceives;...') [Salāyatana Samy. ix,10 ])? Certainly, sankhārā may, upon occasion, be cetanā (e.g. Khandha Samy. vi,4 [3]); but this is by no means always so. The Cūlavedallasutta tells us clearly in what sense in-&-out-breaths, thinking-&-pondering, and perception and feeling, are sankhārā (i.e. in that body, speech, and mind [citta], are intimately connected with them, and do not occur without them); and it would do violence to the Sutta to interpret sankhārā here as cetanā.

6. Nevertheless, it would be a mistake to suppose from the foregoing that sankhārā in the paticcasamuppāda context cannot mean cetanā. One Sutta (Nidāna/Abhisamaya Samy. vi,1 ) gives sankhārā in this context as puññābhisankhāra, apuññābhisankhāra, and āneñjābhisankhāra, and it is clear enough that we must understand sankhārā here as some kind of cetanā. Indeed, it is upon this very Sutta that the traditional interpretation relies to justify its conception of sankhārā in the context of the paticcasamuppāda formulation. It might be wondered how the traditional interpretation gets round the difficulty of explaining assāsapassāsā, vitakkavicārā, and saññā and vedanā, as cetanā, in defiance of the Cūlavedallasutta passage. The answer is simple: the traditional interpretation, choosing to identify cittasankhāra with manosankhāra, roundly asserts (in the Visuddhimagga) that kāyasankhāra, vacīsankhāra, and cittasankhāra, are kāyasañcetanā, vacīsañcetanā, and manosañcetanā,—see §16 --, and altogether ignores the Cūlavedallasutta. The difficulty is thus, discreetly, not permitted to arise.

2) He's a genius sotapanna.

It seems he still believed in reincarnation (which appeared to influence his suicide) thus unlikely was a sotapanna. He appeared to believe "I" have seven more lifetimes; which most bona fide sotapanna would consider to be sakkaya ditthi.

Also, he seemed to express doubt about whether his interpretation of the 'sankhara' link was correct. If he was a sotapanna, he would have no doubts at all that his interpretation was correct and the interpretation of the establishment was wrong. As the Buddha taught (MN 56), as a sotapanna, he would be completely independent in his understanding of the Dhamma.

An individual with a keen intellect can read the suttas and conclude 'birth' & 'death' in Dependent Origination are the arising of the self-views of 'my birth' and 'my death'. However, such a keen intellect does not mean this individual has had the clear inner experience of Emptiness (Sunnata) to destroy sakkaya ditthi.

3) Nyana-who?

Yes. I only learned about him from the internet. I think for serious students and practitioners, Nanavira was too confused, despite his excellent attempt at understanding the Buddha-Dhamma. His "notes" are like a "search" rather than a conclusive view. Admirably, he had many insightful views about Dependent Origination but the incompleteness of his search would invalidate him as an authoritative guide or object of veneration in the mind of most Noble Practitioners.

If I had to speculate I would suggest that he was very intellectual. That can be intimidating.

From the site Nanavira.org:

Notes on Dhamma has been variously described as "arrogant, scathing, and condescending", as "a fantastic system", and as "the most important book to be written in this century". The Ven. Ñānavīra Thera himself remarked of the book that "it is vain to hope that it is going to win general approval... but I do allow myself to hope that a few individuals... will have private transformations of their way of thinking as a result of reading them".