If I understand correctly, these people are using special software to encode data in transactions, namely the output addresses. You can only embed arbitrary data in blocks if you're able to mine a block (like Satoshi's headline in the genesis block and Dan Kaminsky's Ben Bernake ASCII art), otherwise you need to encode it in the transaction data.

Anyone sending Bitcoin can add arbitrary data in his transaction; no need to be a miner: https://en.bitcoin.it/wiki/Script#Transaction_with_a_message

Well then all of the worries about this child-porn being in the blockchain are warrantless.

You could create a link to child-porn from this very comment I just posted using the right cipher. I am sure of it.

What if A) your comment was preserved as a part of the block-chain that could not be removed without doing serious damage to bitcoin. And B) the cipher you are using is a publicly known cipher recognized as the standard way of encoding data into the block-chain.

That almost certainly cannot work. You'll have false negatives, people will sneak the words of synonyms in (just think of how many web forums has people saying "fcuk", or "f*ck"), and false positives, legitimate transactions being banned. Will anyone from scunthorpe be able to use it?