There are three issues here. What Google says, what Google does, and how they do it. The first two rarely match, and the last is almost always "with no warning or explanation."
Giving someone the finger is offensive because it is a statement towards a particular person. A photo of someone giving the finger is not offending anyone, it's simply making a (juvenile) statement of someone's attitude towards life. That's my opinion, but of course that's the problem, this is all about opinion, and when companies start enforcing opinion (and a cultural one at that) as policy, that is only going to cause problems down the road. Repressive governments and organizations look at that and they say, "Hey, you blocked that, so therefore you can block this," and Google suddenly finds itself asked to enforce the morals of thousands of different groups of people. That's a slippery slope.
Your idea that Google will implement per-culture versions of their site is a red herring. Google has fought any attempts to implement regional censorship, and every other major social network has done the same. Instead, Google is enforcing a particular adhoc vision of morality as seen by whomever happens to deal with the complaint at Google support. Their stated guidelines are so vague that anything is possible, and there's no clear way to predict the results.
You are also misstating Google's policy about posted photos (or at least, their implementation). Google does
remove legal photos and drawings that have been flagged as offensive by viewers, and this has included fine-art paintings that contain bare female breasts. Furthermore, once they remove them, it is imposible to upload that picture again, even if it's for your own private viewing—they block it using their photo-recognition algorithms. So no, it's not at all clear that he could post that photo to his stream (at least, as a Picasa upload), or that it wouldn't get removed if he did.
Do I think it was a stupid profile photo? Sure. Did I find it offensive? Hardly. Should he have known better? Definitely. But I absolutely believe that Google's enforcement of that level of behavior is a very bad idea…for both us, and for Google.