I doubt you'd consider it a "minor shortlived inconvenience" if Google informed millions of people that your business was a known distributor of malware.
Google can perfectly well block the malware without making such an accusatory statement. It's not a tradeoff, so I don't really know why you are defending them.
Security is sometimes a trade-off but in this case there is no trade-off involved. Google can just as easily block the malware without the potentially defamatory language.
The accuracy of the algorithm is utterly irrelevant.
Nobody except you is suggesting a mealy-mouthed warning - that's a straw-man.
An accurate and informative statement like:
"Google's Scans detected malware <X>, which is known to do harm <Y> within the past <N> hours at <Z> percent of the pages operated by <COMPANY>. Google recommends that you do not click on this link until this warning is lifted. [Site owners click here for detailed information]"
...would be just as effective.
Scare tactics, especially those that might be laying blame incorrectly, simply breed ignorance, and ignorance is the enemy of security.
it might be better if the message said something like "The site appears to be infected with malware.This warning will be remain in place until the malware has been removed."
That's what you suggested, seems pretty mealy-mouthed to me.
Google can perfectly well block the malware without making such an accusatory statement. It's not a tradeoff, so I don't really know why you are defending them.