A couple of years ago I saw somebody giving a talk, where they demonstrated a CAPCHA-Solving API, with people from India solving the CAPCHAs for a few cents.

That's basically what the DeathByCaptcha server is.

Thanks - I just wanted to say such services exist or used to exist, didn't remember the name.

I feel like there must be some protection in place against using mTurk with captcha, or it would have already been abused.

Mturk's turnaround for this stuff can't be fast enough to work would be my guess. I know jobs I put up there for transcription, despite a generous bonus, were always delayed for at the very least hours.

You misunderstand. You keep a live page open and point jobs to the live page. No need to put a captcha image in the mturk job.

You can absolutely purchase captcha answers.