Anti-virus does some basic heuristics and signature checking, and honestly, they are doing a pretty bad job at detecting virusses or overlooking them (Flame for example, or the recent Adobe CA compromise)

Mikko Hypponen from F-secure, a Finnish anti-virus company, only had the guts to admit it, you can read the article here; http://www.wired.com/threatlevel/2012/06/internet-security-f...

I doubt that. I say this because there are always people who want to do something crazy(like create a virus) just to exploit an OS/app or prove how good they are. Some create malware to infect pcs so they can add to their botnets which could be sold or used for themselves.. So these antivirus companies are just trying to help out.

Isn't that a nieve way of thinking? I don't think there is any hard evidence that virus companies fund virus creation, but it would make a lot of sense if they did. Anti-virus companies have a lot to gain by a vibrant virus ecosystem.

No way. Imagine if they got caught. It'd kill their entire company. How is a little bit of marketing going to be worth that risk? It's almost like asking 'Why don't auto body shops remove stop signs in their area to get more business'?

Actually better yet: Why don't doctors spread the flu intentionally?

Security companies are also probably staffed by people who genuinely want to stop malware. Protecting people is probably part of their motivation to go to work.

Why not? I wouldn't be surprised if they created complex viruses to cause harm to other security software, but their own.

They don't need to, there are plenty of people doing it for them.