It's an interesting analogy for sure and I'm glad you shared it. However, I don't think that Google is the root of the problem here, it's the current way that law is applied to the web.
If what Mahalo is doing is illegal or subject to lawsuits, one or more of the following three things will happen:
a) Google will remove Mahalo from their index
b) Bloggers will sue Mahalo en masse
c) The U.S. government would take legal action
I'm no law expert, but it appears that what Mahalo is doing is perfectly legal. Unfair but legal.
And Google, being a corporation, is not as interested in becoming the judge of what's fair and unfair as they are about protecting and growing their profit margins. In this case, letting Mahalo do their thing helps them make money, so they are perfectly happy to let things stand as is.
On the flipside, Google recognized that paid links were a threat to their profit margins, so they decided to wage war against that industry (with Vietnam and/or Iraq-like results if I might add).
I think that's what it really comes down to, and I also think that the McDonaldization of web content is only going to continue, but that doesn't mean that there won't be room for savvy marketers/publishers that know how to carve out a nice niche for themselves.
