I agree about the abysmal moral value of some Manga (some are plainly normal and not violent at all) and of most Hentai products. Is incredible in my opinion that some people can find entertaining sick images of cartoon female figures (they only recall women, sometimes they have cat ears or bunny tails) being tortured or brutally abused. What I find even more disturbing is that this kind of material can freely circulate on the legal market. I mean, if I take some pictures of my wife naked (never did that, just an example) I'm making pornography while that crap is still legal? Nonsense.
In any case, this last news about the guy being arrested for watching elves and pixies having sex is even more idiotic. Some day we will start putting into jail people that watches the football match of our hated club...
About why such products are so popular in Japan (but, as I know, is not so different in our countries) the explanation is cultural. Japanese society is organized around a very strict moral code and is regulated by ritual behaviors that shape every aspect of the Nipponese life. Every single situation, even the most common or informal, is coded and regulated. Japanese people vent their frustration giving life to extreme fantasies, specially when it comes to sex. For our, western, standards they have a devious sexuality. A few examples are the market in which they sell used underwear (rigorously not washed) belonged to young college students, that can get a lot of money selling their panties, and the habit of paying big money for prostitutes dressed like the Pokemon or Sailor Moon or other popular characters from comics and cartoons. It makes us laugh but is absolutely normal for them.