It was promised as an anonymous, unbreakable, encryption-based currency. And for a while, it was exactly that.
I'm old enough to remember Flooz commercials. Turn money into e-Money, and it's transferable and spendable in bits.
Let's take PayPal as an example. Lots of people accept and spend PayPal money, without ever cashing out as dollars. I know you can argue otherwise, but at its most basic, it is the same thing.
Unless you consider that this particular exchange was particularly suspicious, given signals from previous exchanges which were reputable and still failed. This paragraph is subjective.
Put a middleman in between my BTC and someone else's? Good idea. Put a reputable middleman there? Better idea. Replace middleman with PayPal? Let's go back a bit.
Remember when people could not get money out of PayPal? When accounts could be frozen and your only recourse was to whine like a bitch on the precursors to Consumerist and blogs in general?
If not, you're not old enough. It didn't work well at first for a minority, a large minority, but it is stable and owned by a big responsible entity now.
In summary, the same mindset that brought success to PayPal also brought success to these charlatans. Charlatans were assisted by the intrusions into privacy.
Should they? No. Does anyone now? Fewer. But there's a sucker born any minute. And privacy intrusion contributes more to the ignorant's readiness to risk than any blog post or business plan possibly could.