A little off topic, but I'm curious: I usually use "by design" to mean "an intentional result." How do other people use the term? In this case, the behavior is a result of the design (as opposed to the implementation), but is surely not intentional; I would call it a design flaw.
In fact, it is intentional! Meaning that the system has a performance specification that permits failure-to-recognize-lanes-correctly in some cases. This element of the design relies on the human operator to resolve. Once the human recognizes the problem, either they disengage the autopilot or engage the brakes/overpower the steering.
Now, you could argue that the design should be improved and I would agree. But we should perhaps step back and consider some meta-problems here. As others have stated, the functionality cannot deviate significantly from previous expectations without at a bare minimum an operator alert, training pamphlet or disclaimer form. Tesla's design verification likely should be augmented to more comprehensively test real-world scenarios like this.
But the real core issue is that the design approaches this uncanny valley of performing so terribly close to parity with human drivers that human drivers let their guard down. IMO it's the same problem as the fatality in Phoenix w/an Uber safety driver (human driver). When GOOG's self driving program first monitored their safety drivers they found that they didn't pay attention, or slept in the car. IIRC they added a second safety driver to try to mitigate that problem.
Working as intended: the system works in a basic average-observer human sense
Working as implemented: there were no errors in implementation, and the system is performing within the tolerances of that implementation (but the implementation itself may be flawed, or may be to a design that violates average human expectations).
In this case, the radar system itself is moving... including moving relative to stationary objects. So I don't see how what you say makes sense.
Not saying you are wrong. Just saying I don't follow your explanation.
The real issue is false positives from things like soda cans on the road, signs next to the road, etc. Can't have the car randomly braking all the time for such false positives. As a result, they just filter out stationary (relative to the ground) objects, and focus on moving objects (which are assumed to be vehicles) together with lane markings. This is why that one Tesla ran right into a parked fire truck.
Interestingly, I've discovered one useful trick with my purely camera-based car (Subary equipped with Eyesight): if there is a stationary or almost stationary vehicle up ahead that it wasn't previously following, it won't detect it and will consider it a false positive (as it should, so it doesn't brake for things like adjacent parked cars), but if I tap the brake to disengage adaptive cruise control and then turn the adaptive cruise control back on, it will lock on to the stopped car up ahead.
As far back as the 1970s helicopter-mounted radars like Saiga were able to detect power lines and vertical masts. That one could do so when moving up to 270 knots and weighed 53kg.
The same radar set that worked these wonders while flying would have been absolutely useless for a ground based vehicle.
The easier that you distinguish the signal you want from the signal that you don't, the easier it is to make decisions. For radar, that is far, far easier with moving objects than stationary ones.
You send a radar signal out, then it bounces off of stuff and comes back at a frequency that depends on your relative motion to the thing it is bouncing back from. Given all of the stationary stuff around, there is a tremendous amount of signal coming back from "stationary stuff all around us", so the very first processing step is to put a filter that causes any signal corresponding to "stationary" to cancel itself out.
This lets you focus on things that are moving relative to the world around them. But makes seeing things that are standing still very hard.
Many animal brains play a similar trick. With the result that a dog can see you wave your hand a half-mile off. But if the treat is lying on the ground 5 feet away, it might as well be invisible.