Hm, i dont agree here. Its a question of the legal definition of possession. In germany for example, you dont possess something that is located on a external server where you dont have access, even though you might have a physical link to it (as you are connected to the internet). Which makes a lot of sense. You still dont possess something that is on an external server where you would have access as its not protected. Which still makes a lot of sense, otherwise everyone would possess everything-that-is-not-access-protected. But: Lets say a psychopath burglar breaks into your home and plants encrypted childporn on your hard drive. Now in the scope of something else the police raids your flat, your computer is analysed and burglar used the password 123456, the cops can decrypt the file.
This is the edgiest case i can come up with, but i think this might get pretty close to "the burglar story is so absurd that we treat the findings as hard evidence of a law-break, and not indications".
And as the raw, unencrypted data DOES sit on the BTC chain on your local computer (of course only referring to the "i run a full node at home" case all the time), the argument "ok, maybe i _could_ extract the image-file out of the blockfiles, but i wont do, so leave me alone" is... complicated. Legal wise. At least in germany. Or from the other side: if a pedophile concats all binary-data of his pics into one file, he still possess them. Which makes sense.
So, bottom line: i dont think that the discussion is absurd or bullshit, nor does the "childporn is on the internet, so is everyone with internet access a criminal now?" argument make sense. Multiple problems come together here, the missing "internet law" on the one side and the "immutable chains" on the other hand. At the moment the problem might seem abstract/absurd, but picture a world with more mature dapp's etc, where the data in the chain is actually supposed to describe more than a currency.
For example i was reminded about this problem and search bitcointalk for it when i saw that
http://swarm-gateways.net/bzz:/photoalbum.eth/ is down atm, and i wondered about the reasons, then remembered the childporn in BTC-chain thing.