They absolutely could have, and have been entirely within the rules of the DMCA. My best guess is that the ContentID system is either (a) a bribe to get media companies to partner with youtube's paid streaming, or (b) a bribe to convince media companies that it isn't worth lobbying yet again for stronger copyright monopolies.

They don't care about your average Joe user. Just look at their search results and see what comes up. What they want is to transfer the 'legacy media' to their platforms.

google wants the content up. it is in their interests for there to be as much mundane fluffy ad-watch-generating content as possible.

having it DMCA'd down is a problem for youtube. content id is how most of the material can stay up, the riaa can stay happy, and google can sell ads.