That's basically saying that there should be no online public forums for discourse, anywhere, because the scale means they can't be properly moderated.
No, not at all. The argument is that since Facebook moderates their site according to their own arbitrary standards, it's not a place for public assembly but a publication that Facebook is responsible for as if it were a newspaper. If they did not moderate, it would not apply.
Indeed. Distributed design is the intelligent way to go when it comes to mass communications systems. Too much centralization leads to many such problems
According to what legislation? Section 230 of the Communications Decency Act states [0]:
No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.
Exercising editorial control does not make them liable for all content [1]:
Courts have consistently held that exercising traditional editorial functions over user-submitted content, such as deciding whether to publish, remove, or edit material, is immunized under Section 230.
Section 230 of the Communications Decency Act grants interactive online services of all types, including blogs, forums, and listservs, broad immunity from tort liability so long as the information at issue is provided by a third party.
See [2] for some examples of online activities that are covered.
There's no reason a Facebook-like experience couldn't be developed using distributed technology like SMTP and HTTP. It's just that no one has garnered enough traction yet.
It would mostly make the question moot. In a federated system, there is no worry about a single entity exerting editorial control. Every instance can set their own policies for content and who they wish to federate with. Individual users can find or setup an instance that meets their own needs and requirements.
This isn't at all like a newspaper which only has to do that on a few hundred people.
Scale matters!