Not disagreeing with you that it's difficult but I think you're over-blowing it a little.

Yes, there are thousands of lines of code but that's not a realistic representation of how you solve a problem like this in the first place. Its not a realistic representation of how you solve most bugs actually. The easiest way would obviously be to find a way to reproduce it and then drill down on what the possible variables are that cause it. Duh, right? Well, there's a few ways Valve could do this if they are being proactive.

I think first and foremost, Valve should request POV demo's from the server. ESL should be recording a POV demo off the server, if they aren't already, they should start(they probably are just for production purposes). Perhaps even Fallen's POV and whoever threw the molotovs POV. Then Valve can review exactly what happened.

If they don't already have some sort of event log, then they could just as well make one to make resolving issues like this a lot easier(I'm pretty sure they have one). Then they can drill down to precisely when the molotov was thrown up until it extinguished and look at why this molotov may be different from other molotovs. Maybe its the angle the molotov or smoke was thrown? The x,y,z position of where it landed on the map? The x,y,z of the player who threw it? Did they use a left click, right click, both clicks throw? Were they jumping? Did it happen right as they jumped? Did FalleN make some sort of input on his keyboard or mouse when he threw the smoke? Take all those details and then start experimenting. What happens when you change the X position of the molotov on de_inferno? What happens if FalleN didn't jump? What happens if it was a right click?

I think you get my point. Its a pain in the ass but this is the job of a tester or an intern or, at this point since this problem has existed for years and their attempts at fixing it hasn't worked, it should be escalated to some senior engineer that has a very intuitive understanding of the Source engine.

I'm not chastising Valve right now, I just think its a bit much to say

it's hard to fix a bug when you have no idea why the bug is happening.

Because they have the tools, the resources, the man power to certainly figure it why its happening. Its not magic, it's 1's and 0's sitting in a POV demo. Its just a matter of how much Valve is willing to invest in finding out precisely what's causing the issue and whether they think its worth fixing. The devs at Valve aren't sitting there, head in hand, panicking about this issue they just cant figure out despite their best efforts, I promise you that. These engineers at Valve are literally some of the best in the industry. Shit, I wouldn't be surprised if they have means of solving an issue like this that are unfathomably more productive than what I described above.

I'll give them the benefit of the doubt because they DID have a patch note that was relatively recent that looked like it would have resolved the issue or was at least a step towards resolving it.

But I do think its important to note, for all the people that love to defend Valve. I think when they started making money off the competitive scene in this game, they also took on the responsibility of making sure the results were as fair as they could be. A guy like FalleN shouldn't potentially have to forfeit his piece of $250,000 because a smoke didn't pop on a molotov.