We can assume two things as indisputable facts: 1) Google is a multinational company. 2) To operate in a given country necessitates complying with that country's laws.
If a local country's laws say that you can't deny the holocaust (Germany) or speak ill of the king (Thailand) or talk about how corrupt the government is (Russia), or link to something that might be copyrighted (USA), or what have you, Google's options are limited to either compliance, or ceasing operations there.
What do you think would happen if Google took a public hardass stance like "We refuse to censor user content under any circumstances"? Admirable, and that would make them a darling on the internet, but only as long as it took for the local apparatchik to note that the company is violating local laws, and shuts down their operations there or worse.
Google's best bet in this case is exactly what they've done here - try to limit the spread of the local censorship from its local area. Just because Thailand's king gets easily butthurt is no reason for people outside of Thailand to suffer for the actions of a partially corrupt regime there..
If you have a better (and most importantly REALISTIC) idea, I'd love to hear it.