The game's synopsis from Wikipedia describes the plot:
The story follows the player's hunt for Ramon Solano, a large political figure who contracts the player's mercenary for a job then subsequently refuses to pay and tries to kill him/her. Following a militaristic coup, Solano becomes the dictator of Venezuela. He uses his position to seize control of the country's oil supply, resulting in an international incident and distress among OPEC. Alongside Solano's Rebel Forces, a large portion of the Venezuelan army fiercely supports the dictator's cause.
Simply by changing the name of Ramon Solano to Hugo Chavez, you have basically described the Bush Administration's perception of Venezuela.
This could also be dismissed as just the work of a game developer taking cues from recent headlines. However, that would be easier to do if the game developer was not also a defense contractor for the Pentagon. Pandemic Studios, the developer of Mercenaries 2 has responded to the alegation by releasing this statement: "Pandemic Studios is in the business of entertainment. It has not been contacted by a U.S. government agency concerning the development of Mercenaries 2. All persons, storylines and events are purely fictional and bear no relation to real events. As with any number of games, movies and books, the decision to choose interesting events and locations is purely designed to tell a compelling story, as well as provide a fun and rich experience for the gamer."
Which would be highly believable if this were not the same studio that produced, Full Spectrum Warrior, a training simulation for the U.S. Army released commercially in 2004.
Overall, there's no real conspiracy here. As shoot'em-ups go the fan base doesn't care who they get to shoot as long as it looks cool. So the propaganda is nullified by the nature of its primary target audience.
But I wonder how it would be received in the US if other countries began making games promoting the destruction of the American Government and the assassination of its president. Somehow I don't think it would be so easily dismissed.
Here's the game's trailer: