Interesting article. Mahalo won't be the last site to exploit these methods. There are a number of issues here:
1. My boss said something interesting the other day: As Google has already conquered search and is diversifying its business into different areas, it is not paying as much diligence into its search algorithm to weed out those sites that exploit it. Google makes money from AdSense, so why would it be in a big hurry to take down sites that exploit dodgy SEO practices.
2. As for scraping content without any backlinks, the media industry seems to have very little protection when it comes to copyright. Existing copyright law is woefully unable to get to grips with digital copying and display. If the content had been music, or films, the RIAA would have clamped down so fast, Jason's head would be spinning. But we are talking about digital publishing industry, where content has very little protection at all. 
3. Even if we decide that taking the first paragraph is fair use, not back linking or citing your source is still a copyright issue (not to mention bad Internet etiquette).