The question is, can you trust someone who has broken trust in the past and in a major way?
Not only that, but when he was being pressured and threatened by the government, he refused to cooperate. I think that's commendable and demonstrates real integrity.
Unless there were logs or talks of them doing it for purely academic/educational purposes, which as we know Gonzalez isn't that "sort" of person, it would be unacceptable to think someone of Watt's intellect wouldn't be able to put 2-and-2 together.
He's been around the scene. He knows the scene. He's been a part of the scene.
I agree in terms of law, this all goes into a very grey and fuzzy area - if he had a better lawyer he may have came out in a different situation. Looking at the recent backlash for hackers, he may be looking at an apology (or even a payout) in the future.
In theory, but realistically very little FOSS is audited, and audits are not perfect (and we have to trust the auditor). We have to trust the authors.