Over a 2-3 year period I have observed (by dint of having a frequently outranked legitimate site) probably in excess of a hundred websites run by counterfeiters (of brand name products) reach top positions for a small set of related and highly competitive terms only using overt blackhat techniques like blog comment spam, injection of links into compromised joomla, wordpress, & image hosting scripts, negative margins on divs and marquees - even white text on white backgrounds (like it was 1997).
The sites are removed when either law enforcement agencies or the rights owner take action (for example page 1 of the results for one term is,right now, showing 12 DCMA complaint notices, and have been a couple of fairly large scale operations by UK police to get domains taken down when there is proof of criminal acitivity).
If it were a handful or even a score, then I'd believe that "Google is able to detect and disregard the vast majority of hacked links". However, my personal experience suggests that whatever is left after this "vast majority" still constitutes an awful lot of links.
Of course, I am not arguing that Google is not able to detect a meaningful percentage of hacked links, and indeed I have direct experience of this.
My own site was compromised a few years back, i.e. hacked to serve a bunch of links to the usual suspects - porn, drugs and Australian footwear (using a particularly nasty script that inserted the links only when the visitor was Googlebot otherwise it just returned an empty div - 100% my fault for being tardy in my patching schedule as it was using a widely available cms script) and this led to my site (as the 'victim' site) dropping dramatically in rank, only to recover once I had cleaned up the mess, patched the exploit and completed a re-inclusion request.
However, that so many sites using basic link spam approaches were able to rank so highly for such a sustained period suggests that the current capabilities are far from perfect - right now I can see a site in position 2 that only uses blog spam, is fairly new and is selling illegal counterfeit products. It simply should not be there (outranking the brand website), nor should the other 5 similar sites also on page 1.
Anyway, I obviously appreciate that Google faces an insanely difficult task in dealing with web spam, and the situation I refer to above is (despite the current spate) a lot better than it was 2 years ago, when it was crazily out of hand. Nevertheless, tens if not hundreds of millions of pounds have been lost by consumers to these sites in the same period (most of whom have such a high level of trust in Google as a brand that they rightly believe that anything showing up on page 1 is likely to be legit).