This is a Renter's issue. If I lease out an office space to people whom I know are dealing cocaine, I get put in prison too unless I notify authorities and cooperate with the investigation. The host being penalized for knowingly hosting a website dealing illegally in IP is analogous. What's the hubbub about? Seems reasonable to me.
No one suggested the host had to take-down the site, the host probably should have notified the IP holder and worked with authorities. It's not the host's responsibility to kick his leasees out of his office space, in fact the host has a legal obligation to not interfere with a leasee's space unless invited in during the terms of the lease. The IP holder has no authority to demand a takedown, only a judge does, but you can cooperate to get to the bottom of the issue instead of being an antisocial asshat that ignores everyone. A simple call a lawyer "I've been notified that a website I host is dealing in illegal items and I'm calling to cooperate with any investigations currently underway or that you will initiate." Not so hard.
According to TFA (reality may exist separately from what the article's author has written), they were expected to take down the site when they were notified of the "illegal activity". Now the fact that the web hosts were sued and found guilty leads me to believe that it is more likely they were being stubborn and not helping the investigation. However, the article didn't really make that clear.
What the article did seem to make clear, though, was that the web host's lawyers seemed to rely on existing DMCA law and case law, while Vuitton's lawyers relied on existing trademark law as applied to the physical realm. How they made the stretch from cooperating with a legal investigation to, for instance, give police access to a rental property where someone believes counterfeit goods are sold or manufactured, vs. taking down a web site where someone alleges counterfeit goods are being sold, I don't know. I would imagine the web host's lawyers thought they were in the right in advising their client, but I would hope he also followed the steps put in place by the DMCA to comply with a takedown notice, rather than just filing it in the junk mail.