The problem is not with Google indexing news and making them searchable. The problem is Google creating a service exclusive to news search, where they push the limits of fair use. Why would Murdoch block Google from spidering, when they can get free organic traffic. Google is a search engine remember, that's what they do. Provide search, but the real argument here is Google taking things to far.
So what would you suggest--that Google dump everything in one giant, undifferentiated index? That doesn't make much sense from a curatorial point of view or, for that matter, from a searcher's point of view. And can you imagine the cries of pain at Webmaster World if wallys-widgets-for-sale.com had to compete with the latest Silicon Valley widget headlines in Dinty Moore Stew-style SERPs? (We already hear enough complaints about Universal Search!)