Your definition of a safety pilot, I'd call a passenger. You're saying that the safety pilot has no responsibility what so ever. He's supposed to look for traffic, well as Pilot In Command, that's your responsibility. You are responsible for the safety of the flight, and that includes not running into someone.
Duh. That's the whole point of having a safety pilot. Think about it. The PIC is always responsible. If the PIC is under the hood wearing a view limiting device, engaging in simulated instrument flight, in order to satisfy the see and avoid requirements, a safety pilot is required. If the safety pilot can't see adequately, the safety pilot may be supplemented by additional observers to ensure than an adequate lookout for traffic is maintained. The safety pilot's prime responsibility is to do what the person manipulating the controls cannot do; look for traffic.
The safety pilot is there to supplement the flight for the purpose of safety. Not to take responsibility for the safety of the flight. Certainly the safety pilot may and should take his or her responsibility seriously. However, if the safety pilot is not the pilot in command, a matter to be decided between those occupying the control seats in the airplane as a matter of clear designation, the safety pilot does not have the legal authority to assume the responsibility for the safe outcome of the flight. That responsibility ALWAYS belongs to the pilot in command. The safety pilot may or may not be the PIC; this is a matter of designation that may be given to either the safety pilot or the pilot manipulating the controls.
Seems like if you are responsible for not hitting anything, you should have to be able to see it, no?
That is the whole point of having a safety pilot.
I find it difficult to believe (and even after re-re-re-re-reading the regs) that there would be a reg saying "oh yeah, go under the hood so you depend on someone else to see traffic but not have them responsible for it" and then the "reckless and careless" rule too.
You find it difficult to believe because there is no regulation that begins "oh yeah...". Don't be ridiculous. However, if you will read your regulations, you will clearly note that 91.3 ALWAYS provides that the pilot in command is responsible for the safe outcome of the flight, and holds the ultimate responsibility for that duty, as well as being the final authority for the operation of the aircraft. This rule is universal.
Regardless of weather the pilot in command is wearing a view limiting device, in instrument conditions, flying at night, in the daylight, eating a bagel, or counting backward from 100, the PIC is still responsible for the safe outcome of the flight.
In the case of simulated instrument flight, a safety pilot is required. The safety pilot is not the pilot in command, though by mutual agreement the safety pilot may agree to be pilot in command. A flight instructor is not automatically pilot in command, though many instructors wrongly believe so. Neither is a safety pilot.
You find a single case where a pilot has suffered enforcement action for acting as pilot in command while wearing a view limiting device, and employing the services of a safety pilot. You cannot do it, because this is entirely consistent with the regulation. The matter is not ambiguous; you simply don't understand it.
He's entitled to log any approach his student flies in IMC and any instrument time in actual IMC, so does he get to log this approach?
Negative. The instructor is not automatically entitled to log the approach. An instructor is entitled to log as instrument time all time spent acting as an authorized instructor while flying in instrument conditions. This regulation does not entitle the instructor to log the approach, nor should the instructor do so.