We don't deal with malfunctioning PEOPLE right now. Drunks, old people, and visual impaired people routinely climb behind the wheel everyday.
We don't deal with these problems, because we have bad laws. We have bad laws because politicians want to please lobbyists, and don't want to seem "soft" on crime or negligence. As a result, they pass laws that are too strict (DUI laws being a classic example: studies show the majority of people are NOT significantly impaired at 0.08%).
When unreasonable laws are passed which victimize pretty much "innocent" people, people lose respect for the law. Not just DUI but also (former or at least getting there) marijuana laws are great examples.
A self-driving system doesn't have to be perfect, it just has to be better than what we have now when we scale it up.
Nope. Based on past advances in automobiles (ABS, airbags, power steering, computer throttle control), what will happen is that they will get released, and they will have some major screwups (or public perception of screwups anyway), and there will be a flurry of very heavy-duty lawsuits, and it will go away for a while. Then they'll come back in new and improved form. Then there will be a couple of more lawsuits, and some recalls. Sales will go down a bit and improve again. And it will gradually smooth out. Probably.
It's a bit like the "ringing" effect in some kinds of oscillators.