Realizing this post is about 2 years old, I did want to reply on your message.
While what you said is partly true, the problem lies within the terms of service and rules of Linden Lab.
They're without discipline and not firm enough. There has been websites, Blogs if you will, that collected reports of pedophile sims and residents, sent to Linden Lab, phoned to Linden Lab and nothing has been done about it only to receive answers such as "The right of freedom and freedom of speech is applicable here" so the blog stated back in the day.
Now if harassment stays in SL and no RL threats are made, I suppose the mute button does it's work fine. I among a lot of people have been harassed many times not only within SL but also residents harassing me or my girlfriend with RL threats such as "I will come to your house in RL and kill you" which is a classic one really. If this happens to you:
Call the police in your area. Tell them exactly what happened - Make sure you make screenshots of the threats. The law can actually help you. I have asked around and been told that RL harassment, even when it's done in virtual environments is taken very seriously. I have the prove of that because years ago I was stalked in SL at first, then later in RL and that I had to endure for a little over a year. I called the police and they took the matter in their hands and I was rid of the stalking behaviour of this person.
So if you are harassed, and they are RL threats.. don't hesitate to call the police in your area.