Sorta related to the whole Pirate Bay situation (albeit different crimes). The similarity however, is both sites host services that allow OTHERS to post whatever they want, 'somewhat' unhindered.
What McMaster's needs to understand, is that for Craigslist to police every single posting, would be a HUGE undertaking. Which is why many sites like this rely on users to click the "Report Abuse" button in effort to assist in policing the site.
Without a human checking each posting, it's near impossible to prevent the ads that McMaster's is up set about. All you have to do is post a listing with a .gif or .jpg, which contains images or text that gets your point across. Doing such, any software code Craigslist writes, won't be able to necessarily prevent someone from posting entries which mention sexual services through scanning text.
It'll be interesting to see how this one unfolds, should it ever become an issue that goes to trial. Cases like this, and the Pirate Bay case, will become case law that has a huge affect on everything Internet in the future.