Marissa Mayer said that Google changed the policy 10 days after the product's launch, but didn't announce it. "We looked at it and we thought that's really silly because that's not the point of this product. The purpose is to show what the stores look like, what houses look like. If someone says, 'Hey, there's a face here,' ... it doesn't matter whose face it is."
A car accident in San Bruno, California, via Street View Sightings.
Google Maps help center continous to be vague about this: "Street View contains imagery of public property, which is no different than what you might see driving down the street. Imagery of this kind is available in a wide variety of formats for cities all around the world. That said, we understand that Street View imagery may contain objectionable content. If you've seen content like this, please see our help article on how to report inappropriate images." Basically, you have to click on "Street view help" link next to the image, select "Report inappropriate image" and fill out a form.
The street view images could be even more useful if they didn't contain people, cars or other transient objects. People passing by don't define a place, they just happen to be there. Because Google and Immersive Media take a lot of photos from a single place, it's not very difficult to detect the overlays. There's even a free software that allows you to remove tourists from photos.
So one should expect that Google will automatically remove people and cars from the images. Maybe, at some point, Google will also offer an API that lets you add objects created with SketchUp or other 3D modeling software and integrate the imagery in Google Earth.