The practice hurts Google because it hurts Google's users, so of course they want to stop it. As a frequent Google search user I want them to stop it as well. Buying your way to the top of Google results should be made as difficult as possible.
I think Google is allowed to remove sites from their index. Is that what you mean by 'whatever they want'?
If they want to remove sites from their index because those sites are no good for their index, etc. ..Fine. But, if they remove sites for reasons other than 'We don't want these sites in the index or in the SERPS,' that is a problem. In this case, I am arguing that they don't want to remove those sites from their index. They want those sites to comply with their nofollow policies. I don't even have much a problem with these policies. I have a problem with Google being able to set policies and enforce them directly with the threat of removal from the index. It is almost equivalent to the threat of removal from the web entirely due to the way people use the internet and Google's role in that. Many sites get more traffic from searchers Googling the name of a site then direct traffic.
Sure they can. They wouldn't survive very long. That's why they don't.
There is not a perfect marriage between what is good for Google and what is good for the world.