The problem Google is having isn't with storing the links, its with the effect of the links on the personalization of your search results. Which is a problem WebMynd isn't facing.
They can't precompute the eigenvectors because it changes every time you visit a web page and calculating it live for each search request when the user has thousands of personal pages can be expensive.
I would have just disabled the effect of the personalization on search of bookmarks not added manually.
Obviously, it was a slightly tongue in cheek comment..
However, I would point out that WebMynd IS doing personalised search (totally personalised, in fact). As you point out, updating search indices every time a user visits a page is difficult.
The fact that Google have chosen not to tackle this challenge, and we have, is a symptom of their existing methods and stated goal of organising the world's information: not your's.
As for your last point, I actually agree with the OP and others that Google's soft touch on this matter was commendable; disabling the effect or blocking the extension outright would have been heavy handed and sent a pretty bad message.
I'm not entirely sure disabling the personalization effect would have been the wrong thing to do from a user experience point-of-view. Supposed I let a friend browse on my computer, do I really want my search results to be personalized with stuff that interests him/her? What about pages I mis-clicked on or pages that whose link was misleading?
I think that requiring a deliberate, conscious vote of confidence from the user for a web-page before actually letting it affect my personalized search results is a very good thing.
But from a public relations POV you're probably right, that was the best approach
The problem Google is having isn't with storing the links, its with the effect of the links on the personalization of your search results. Which is a problem WebMynd isn't facing.
They can't precompute the eigenvectors because it changes every time you visit a web page and calculating it live for each search request when the user has thousands of personal pages can be expensive.
I would have just disabled the effect of the personalization on search of bookmarks not added manually.