CUUSOO isn't broken. I think people's understanding of CUUSOO is broken.
CUUSOO isn't really about making products that hobbyists want. Or, not directly. On the surface, it's about information gathering. What types of things are LEGO hobbyists interested in, and how can LEGO use that information to cater to its hobbyist market? They might use that information to make better products that you're more likely to want, but not without a lot of filtering and finagling.
But mostly, it's about brand building and advertising. LEGO doesn't really care about the vast majority of ideas that are submitted. There are a TON of half-baked ideas that don't stand even the most remote chance of even making 100 votes, let alone 10,000, and let alone support from LEGO. BUT! Just because LEGO doesn't care about those ideas, and just because most AFOLs don't care about those ideas, doesn't mean that you (as a contributor of a dead-end idea) won't go doing some advertising for LEGO. You'll gladly email all your friends (both LEGO and non-LEGO friends), and ask for them to support your idea on CUUSOO! ... Which gets them thinking about LEGO, and maybe even how THEY could submit a cool LEGO idea.
The fact that some sets come out of it is pretty secondary as far as LEGO's concerned. Or, so I imagine. But, admittedly, they DO need some success stories in order to inspire you. If you didn't think your idea was going anywhere, you'd never submit it, and you'd be less likely to spam your friends with it. So, they need SOME sets to make it.
Hence, asking LEGO to somehow put resources towards restricting what you can submit by pre-approving them would be counter-productive for LEGO. Not only would it cost them more in terms of manpower, slogging through thousands of entries every day, but it would also deny many people the chance to send out spams asking for support of their LEGO project.
LEGO's approach (IMHO) is just fine, considering what they probably want it to be.
As for licensed stuff vs. original content? Meh. LEGO's team of concept designers aren't vanishing because of CUUSOO. Concept designers might be helped out by the information that CUUSOO can provide, but they're not going out of work thanks to CUUSOO submissions any more than they would be by people submitting awesome MOCs to Flickr or something. The awesome MOCs get posted to a dozen different LEGO blogs that LEGO is already watching. So CUUSOO's not saving them anything on that front.
Anyway, it may not be what we, as hobbyists want. But it's not broken at all, in my opinion.