Google sends out emails to a bunch of different addresses like [email protected], [email protected], etc and notifies anyone signed up through Google Webmaster tools. The only improvement I can think of would be if they notified whoever was listed after doing a WHOIS of the domain but that's a little hard to automate.

>And after that, it forces the owners of the site to register with Google and use Google services just to even figure out why, and to get their sites unflagged.

Google forces you to prove that you own the domain before they give you any information that they don't release publicly. How else do you suggest they go about not releasing everything publicly? Also, all you have to do as a site owner is click on the safe browsing diagnostic link and go from there.