Speaking as someone who does sell those extended warranties, it's not a black-and-white bad deal, because of the customers themselves.
Scenario 1: We don't sell a warranty on an electronic product. It breaks. The customer will invariably want to return it to our store, after the 14-day electronics return policy clearly printed on the receipt (a policy I explicitly mention at the register) -- hell, often months later. When I remind them of the return policy, and tell them they now have to take up defects with the manufacturer, 9/10 of them won't get why this is the case and feel disappointed and cheated, and at least 1/3 will tell me they're never shopping at my store again. Some of them do this more "nicely" than others.
If I do sell a warranty, the user is covered against accidental damage, damage not covered under the manufacturer's warranty, and just not wanting the product after all. Compared to a 15-days-plus regular return, management doesn't bitch as much about a store warranty return performed in the store, even though we're supposed to direct customers to our 800 number/website to process returns. (From personally having one of the warranties on a camera I eventually dropped, yes, it really is a no-questions-asked, quick, friendly process. I don't think I even mentioned I'm an employee.) Since we can do this, the customer is happy, and my job is much more pleasant.
The important point of this story is that the customer doesn't understand the return process, and the customer doesn't want to understand the return process. He doesn't know why his product broke, or even if it's really broken. He doesn't want to look for solutions online, doesn't want to go to the trouble of phoning the Indian call center of the now-distrusted company, doesn't want to box the product up and ship it back. He goes to the "source" of the problem, my store, and just wants his money back within about 60 seconds and the signing of a single receipt.
Theoretically, by selling these no-worries warranties, I'm contributing to the downfall of mankind by telling people that, with a warranty, they don't have to be self-reliant, knowledgeable, or in any way responsible. But it's not like I could instill these qualities in random strangers, anyway. So by selling a warranty, I gain an extra dollar or two in my paycheck (employees' motivation to sell these is primarily managerial, not financial). The customer is placated. I don't have to call other employees or managers to the register, to say exactly what I just said, and take the exact same abuse from the customer.
TL;DR: Customers don't want the truth; that's why it's unacceptable. Until their attitudes change, or my company decides to engage in charity by paying its employees to help soccer moms grow up, instead of paying us to sell product, I'm more than willing to deliver a 30-second spiel about an extended warranty in the hopes of just keeping all parties happy.