There are native torrent clients for a staggering variety of devices. If you can get an IRC client on it, why not a torrent client? Even your old J2ME dumbphones have one[1].
Could Google ban this app from the Market? I mean even if they change their policy to say that, would it be legal for them to ban it? I suppose if Apple can ban political satire...
It's their market, they can ban whatever they want. Whether it would be an idiotic move or not is an entirely different discussion...
And the app can pop up on the Amazon market or other markets, not to mention that you can download and install .apk files directly to your Android.