This is actually what digital forensics specialists do as well, although they've probably moved on from MD5 by now.
I know there's been talk of "fuzzy hashes" as well, in order to catch files with trivial modifications, but when I studied forensics (about four years ago), that was still in the future.
Searching hundreds of thousands or millions of files by hand would be impractical and for many types of offensive content, the authorities don't want to have to distribute the actual offensive content to the people who are doing the detection.
i.e. in the US, possession of child pornography is such a serious federal crime that if one happens to discover it on a PC they are servicing, they (or their employer) are legally obligated to contact the FBI immediately. Therefore, it doesn't make sense to distribute a detection tool that basically contains the original images (in order to do GIS-style "find similar images" searches), because that tool would violate the law it was designed to help enforce. Short hashes can't be used to recreate the original images, so they're "safe" in that sense.
It's not an ideal approach, but it works pretty well and fits within common constraints of the field.