As I see it, Google was essentially the cause of this particular mess. It's not our job to clean it up for them. Yahoo used to simply ignore backlinks that they identified as paid - they didn't hand out penalties and they didn't ask people to report each other.
Along with many others, I'd like to see Google drop the emotional, and nearly war-like, attitude toward paid links. That emotion has not improved the search landscape one bit - in fact, it seems to me it clouds their corporate judgment.