To be quite honest, this seems like a case of Libel and possibly Tortious Interference on behalf of Google/Alphabet. Especially if you can show damages/customers cancelling service, I think this would be a hill to die on. Google et al have too much power, even over people and orgs that aren't even customers. Its high time we reign their powers in, find them strongly culpable for what they do (and what they change and…
1. The poster was hosting malicious content from their domain (user uploaded no doubt, but still on the domain they control).
2. On one hand, it is desirable that people who are not malicious be given enough information as fast as possible to rectify their sites.
3. On the other hand, this same sort of information can make it easier for malicious users to evade detection.
That is, it seems to me like there is an inherent tension between #2 and #3 that make a simple solution difficult.
Seems to me that:
1. As the poster discovered, user content should always be hosted on a separate domain. Google should recommend this as a standard good practice.
2. Perhaps I'm missing something, but when Google blocks an entire domain, I don't see the harm in telling the site owner which subdomain is causing the flag, which could let good users identify the problem faster.