Google Video (the service that existed at Google before and to some extent after :-) they bought YouTube) early on used an algorithm for picking the top videos to put on the page based on views/ratings/comments etc but that early algorithm had built in from the start a check for things being NSFW and thus preventing them from ever making the list.
Seems like a brain fart. Either that or a poor attempt at getting publicity for the service. That latter would be really lame if Apple pulls the App based on the commotion.
This was the second mistake. There should be business rules in place to prevent this. Most likely they rushed the app to production without considering this case.