Police Copyright? Face Libel Charges?

Reuters reported that Viacom is suing Google for allowing people to post copyrighted videos. As Viacom put it:

YouTube's strategy has been to avoid taking proactive steps to curtail the infringement on its site," Viacom said in a statement. "Their business model, which is based on building traffic and selling advertising off of unlicensed content, is clearly illegal and is in obvious conflict with copyright laws."

I certainly have sympathy for copyright owners, as keeping control of my own IP is a constant fight. However, there's another issue. According to my understanding of previous court decisions, the only way companies carrying messages for others - like MSN offering public forums - can avoid getting entangled as defendants in libel suits is to not police traffic. The act of editing can make them become responsible for what they leave up. That leaves Google in a pickle: does it look for copyrighted material? How is it suppsoed to know? Have someone go through every single post? And if it does, what if one person defames another in a video? We are seeing the fallout of ideas that get ahead of business models and the law.