Hoisting, own petard etc.
I think that their legal problems may stem from their own attempts as bluring faces. By doing so they have acknowledged there is a privacy issue here, which they say they have solved by using face blurring algorithms that do the job in all but a very few exceptional cases.
However they must be aware (if they have used Street View at all themselves, which one would assume they have!) that their algorithm is in fact not that good.
As an example, I spent about 10 minutes looking at the streets here in Oxford around the hospitals, and found any number of unblurred faces. Here are some of them, I haven't posted links to others including children and people going in and out of the hospitals themselves :
Near the JR & Manor hospitals :
http://maps.google.co.uk/maps?f=q&source=s_q&hl=en&geocode=&q=oxford&sll=53.800651,-4.064941&sspn=18.199598,39.550781&ie=UTF8&ll=51.760828,-1.219482&spn=0.148536,0.30899&z=12&iwloc=addr&layer=c&cbll=51.761016,-1.219489&panoid=konTfQ4Je_VoQBjS2NKiqA&cbp=12,349.3999999999999,,1,20.500000000000004
http://maps.google.co.uk/maps?f=q&source=s_q&hl=en&geocode=&q=oxford&sll=53.800651,-4.064941&sspn=18.199598,39.550781&ie=UTF8&layer=c&cbll=51.758583,-1.216115&panoid=nV9Vcc7IzlBcNL-fHoZVZg&cbp=12,99.15082556637552,,2,15.18749999999998&ll=51.758544,-1.216221&spn=0.016098,0.077248&z=14&iwloc=addr
Near the Churchill and Warnerford hospitals :
http://maps.google.co.uk/maps?f=q&source=s_q&hl=en&geocode=&q=oxford&sll=53.800651,-4.064941&sspn=18.199598,39.550781&ie=UTF8&layer=c&cbll=51.764419,-1.226631&panoid=qtvuak7HOXz0y5FkjJwk3Q&cbp=12,49.162623249768224,,1,12.375068154619257&ll=51.764334,-1.226521&spn=0.016095,0.077248&z=14&iwloc=addr
http://maps.google.co.uk/maps?f=q&source=s_q&hl=en&geocode=&q=oxford&sll=53.800651,-4.064941&sspn=18.199598,39.550781&ie=UTF8&ll=51.752805,-1.220512&spn=0.0161,0.077248&z=14&iwloc=addr&layer=c&cbll=51.752746,-1.220502&panoid=D99TMln7ft8Ro5_gfkp4bg&cbp=12,300.29957999999993,,2,18.72499999999998
http://maps.google.co.uk/maps?f=q&source=s_q&hl=en&geocode=&q=oxford&sll=53.800651,-4.064941&sspn=18.199598,39.550781&ie=UTF8&layer=c&cbll=51.753315,-1.212255&panoid=L9SPwUvXdX_cOC9f8FVkPg&cbp=12,127.15146627864465,,2,6.8374999999999995&ll=51.75333,-1.212412&spn=0.002012,0.009656&z=17&iwloc=addr
Given that it only took a short time to find this number (and more), Google really can't claim that its only exceptional cases that aren't blurred automatically. If they keep claiming that, knowing it is false, I think they are heading towards stormy waters. And if they acknowledge the problem, and don't fix it or withdraw Street View, they they likewise may find themselves in hot water, as by attempting the bluring in the first place have acknowledged a privacy issue.