Not sure what you mean by splitting pennies, earning the bid/offer spread? That's common but the person who paid the spread to them got to trade instantly instead of waiting for another natural buyer or seller. The spread is payment for providing a service, just like an insurance company earns the spread between what you pay in premiums and their expected losses on claims. High speed market makers compete with each other so the spreads they end up earning are tiny.

The majority of high speed traders are trading their own account and don't have customer orders to front run. If you prefer a loose definition of front running to mean something like "reacting to changes in the market faster than others" then yes, but I don't see anything problematic with using public data to make your prices more accurate faster.

If you believe markets operate well without intermediaries, there are block crossing services where institutional investors can try to match up with one another. I'm sure institutions would prefer trading that way, but it turns out finding someone trying to do the exact opposite trade at exactly the same time is very difficult--volume transacted on these systems is small.