Dotcom got in trouble because he was intentionally hosting infringing content, going so far as to try to hide that material from the copyright owners by making it look like he had taken it down when notified of its presence when in fact he just made the URL that the owners knew about stop working. Employees that went too far and actually took down infringing material got reprimanded.

Go dig up a copy of the indictment. It includes a bunch of internal emails from Dotcom and other running his site where they talk about all this stuff. It was basically a site whose intent and business model was hosting pirated movies. That you could also use it to host your own photos or whatever was there to try to provide cover.

The reason why Google is not accused of hosting copyrighted content is because they somehow managed to sell the fiction that streaming and download are two totally different things. The slightest touch can make that fiction dissipate.

Does the extent matter that much? Assuming YouTube did nothing to take down copyrighted content, is that better or worse compared to lying about taking down ?

So long as they respond to actual DMCA reports, no. ContentID goes far, far beyond what is required by the DMCA to have safe harbor.

They won’t get sued if they follow the DMCA process which is very different from what they are doing.

They were sued [1]. The lawsuit lasted 7 years and ended in a settlement. The terms were not public, but I think it's likely they promised to institute a process that goes above and beyond what the DMCA requires. [1]: https://en.wikipedia.org/wiki/Viacom_International_Inc._v._Y....