Hindsight is always 20/20. The problem was that “the Academy” did not produce the TV broadcast, and “the producer” was pretty much limited to showing what was happening on stage.
Take a look at any live news or sports program where something goes badly wrong – say a power failure at a sporting event where the lights go out. There’s no instant solution; the announcers fumble around for awhile while the producers try to decide whether to switch to another game, go to the studio and let those announcers try to fill time, or just hope the lights come back on.
In this case, probably the only person who had the actual authority to order Will Smith out was David Rubin, the President of the Academy. Rubin, whose actual profession is casting director, had already been slapped around by Academy members for daring to move some of the lesser categories out of the live telecast. Now he was stuck with the decision on whether to kick out one of Hollywood’s biggest names while simultaneously working with the telecast’s producer to reorder the show on the fly. Under those pressures, doing nothing and let the show go on, and perhaps hoping that Will Smith wouldn’t win, was certainly understandable, even if wrong.
Maybe, just maybe, a Lorne Michaels, who’s had decades of experience with live TV and crazy actors, would have figured out a better solution. But even Michaels didn’t throw Martin Lawrence out of studio 8-H after his infamous monologue. Instead, he let Lawrence continue on the show, whereupon Lawrence called Stuart Smalley/Al Franken an “ass pirate.”