Time's Man of the Year was historically awarded to the most prominent news-maker of the year. Naming Hitler man of the year was not intended or taken by most people to be an endorsement of Hitler or of Nazism. The tone of the article is ranges from neutral to critical, remarking on how much power Hitler had attained in a very short period of time. You can read it for yourself here: http://content.time.com/time/magazine/article/0,9171,760539,00.html

The fact that they didn't mean it as a positive thing is obvious from the cover, which shows an etching of Hitler as an "unholy organist" playing a "hymn of hate" on some kind of medieval torture rack.

I did a brief ProQuest Newspapers search and found very little discussion of it from the time period amongst major newspapers — just mentions that it was the case, which also discussed the cover (which was a departure from the usual portrait). There was much more discussion of the fact that the graduating class in Princeton in 1940 chose Hitler as the "outstanding" man of the year, which caused some confusion (the Princeton students emphasized they weren't supporting him, to no avail).

As an aside, my favorite Man of the Year cover from that period is that of Truman in 1945, where he is knocked off of his own cover by the power of the atomic bomb.