I was very concerned when I heard about this. It is such an unrealistic expectation on Google to monitor everything that happens on their services. If there is a concern, a user of the service(s) should report it to Google - if they fail to react within a reasonable time frame and do not co-operate with the authorities in apprehending the scum that created and uploaded this video then I could see some grounds for a warning to be issued to Google.
I cannot believe the Italian courts allowed this case to go ahead - it is absolutely ludicrous! It's quite shocking that they are not able to see that their logic is completely flawed. I assume Google had a good legal defense team - it would appear no amount of metaphors will convince the Italian justice system of their mistake. Perhaps a closer-to-home metaphor may work - why doesn't someone sue the Italian Courts on behalf of the Italian public, for every criminal yet to commit a crime in Italy. Better still, sue them for every re-offending criminal - at least you've got something more to work with on that one.
It does open a debate - not so much the monitoring of content on YouTube, but the system for reporting questionable/horrible content. Should an independent body be responsible for it, much like some social networking sites have done recently to combat child grooming? Should there be a legal requirement regarding response times and course of action? Normally I find that Google are pretty swift to react to flagged content. The thumbs-down commenting system is good too. More than 6 people disapprove and it's removed so nobody else can see it and stoke an ever-lasting flame war. "Normal" improvements in line with technological advances aside, I don't think it's fair to expect significantly more from Google.