Yes the Olympics are a cashcow for various groups of people involved and that is probably all the sponsors will ever see them as. But, however you try to twist it the basis of the Olympics is athletic competition, no matter how commercialised that has become. To the average person who doesn't care a jot about the sponsors or tourism it provides the opportunity to see and support the best athletes around competing in a world arena, and that is the point.
Regarding "supplements", yes some people will get caught and perhaps some won't, but hopefully enough do to act as a deterrent. I don't believe that destroys the integrity of the games though, it certainly dents it from time to time but it's still able to produce some amazing pieces of human theatre. Maybe these won't be the cleanest games ever but I'll work on the innocent until proven guilty principle for anyone who is successful.
The standardisation issue is a problem in the cycling events, granted, but outside of that there is not such a problem, of course different track surfaces can produce different performances. But when running the 400m everyone is on the same piece of track. You might be in different lanes, but every athlete should train to run their own race wherever they are - the alternative, as you seem to suggest, would be to run everyone in the same shoes in separate time trials, possibly handicapping the ones with longer legs. At that point the Olympics would have truly lost any character it still retains.
But back to the original point of the rights and wrongs of having the Olympics in China.
Does anyone really think that having the Olympics in any given country is going to suddenly mean that that country has turned into a cute fluffy bunny who has never hurt anyone and likes making daisy rings for a hobby? No. So no government is going to change how it treats China on the back of the Games.
Does that mean that people are going to set up trade links with China because the Olympics are there? No. As you have already indicated business does what's good for it and nothing else, so if companies are setting up in China it is because they want to make lots of money and they see China as the way to go.
If you're arguing from the ethical point of view that doing any business of any kind with China is wrong then I can only ask to to throw/sell virtually any piece of technology you own, about half your clothes and donate the proceeds to a Tibet freedom movement of your choosing. Maybe you can make a documentary about it with your homemade camcorder.
Whether we like it or not China is important in the world and the option of ostracising her is not there. But we can of course make all diplomatic moves available, to try to change the way China acts. But an attempt at humiliation, by countries withdrawing from the games, and so then making them political, is more likely to backfire and destroy the diplomatic relations which we do have, and with it any influence.