I don't think there's any system or algorithm or formula that is ever going to completely guarantee a Web search does not return offensive material.
As far as the Michelle Obama-as-a-monkey picture, my question isn't so much why it turned up as why it ranked first. Seems to me someone must have found an exploit in search engine ranking ratings, and Google would do well to fix the exploit. I don't think Google should block the image, but I don't think they should let whoever created the image jimmy the results to have it appear first, either.
As for the Muslim cartoons...why should Islam be exempt from being lampooned? People poke fun at Christianity all the time, and Christians don't threaten to kill people and burn buildings over it.
The bottom line is that people with a super-thin skin should probably stay off the Internet.