Yes and no. If I am not allowed to short IBM, I can get around it. I simply short the Dow and go long the other Dow components (that is, excluding IBM). The transaction costs are not that large. Mostly, it's just a stupid rule that can be easily traded around.
I don't think that that's correct. I think that the 'short selling ban' banned actual short selling, and actions which had an equivalent effect. So your example of shorting the index and buying all the stocks except one would have fallen foul of the ban.
Andrew, I believe the short-selling "ban" was actually only on a bunch of financial firms. You could still have shorted the indices.