It's been said before, Silver, but I think you have a basic GM/player incompatibility thing going.
One thing to realise is that in-game solutions won't change anything, they'll just do it again. The only way they'll play along is if they're playing what they want.
Personally, I'd have walked out a long time ago over this. Maybe I'm lucky, but I get to play with friends, which means that while there's a certain amount of negotiation involved, at least it's peaceful, and we don't get players sabotaging the setting. I lay down basic rules, of which the most important is that characters stay within genre - in creation and play - so I don't get superheroes and psychopaths in a Star Trek game, and heroic characters in my fantasy games stay heroic. If players break the genre, I talk to them about it and then throw characters and players out if they don't change The point is that the players agree to them when they start.
Jon
"There are worlds out there where the sky is burning, where the sea is asleep and the rivers dream; people made of smoke and cities made of song.
Somewhere there's danger, somewhere there's injustice, and somewhere else the tea is getting cold. Come on, Ace, we've got work to do."
THE DOCTOR, "Survival" (Doctor Who)