[rhapsodic]

> Shouldn't bad recruiting practice like this hurt the company's reputation?

I imagine it has, to an extent, among their pool of potential candidates.

> And shouldn't people be more hesitant to apply to companies knowing that they will be treated badly?

I'm sure there are people who have decided not to pursue employment at Google based on the what they've heard about Google's interview process. But, apparently, there are still many thousands of good developers who are undeterred by Google's reputation. So for the time being, in their cost-benefit analysis, Google has decided they're better off without making major changes in their hiring process.