Although its not nice but are they going to sue the ISP's and everyone that has the video stored in their cache??? With the millione of videos on google video, how can you control so much data.
I think in some countries it is just as much an offence to watch and glorify a crime as it is to commit it.
A fair few school staff turn a blind eye to bullying; if evidence appears on the internet, whether posted by perpetrators or by-standers, it could kick the school into doing something about it. On Google's position, the usual rule is that a host should ensure objectionable material is removed within a reasonable time after being so requested. That seems both fair and practical (not that those considerations usually matter to lawyers).
They've also consistently said that any legal actions must be filed in the correcvt jusirdiction, which in the case of Youtube means that it would have to be filed in the US.