I don't think they dropped the ball as much as they were probably in shock at what they were smelling, especially since the towyard guy and George had smelled that particular smell before. I think they didn't want to believe what they were smelling and were hoping they were wrong. It's human nature to not want to believe the worst just because you smell something that should tell you the worst has happened. George, Cindy, and Lee didn't want to believe Caylee was dead and that Casey had something to do with it. The towyard guy probably didn't want to believe he was smelling a dead body. And since there was no dead body in the trunk to confirm suspicions, they all wrote it off at it first, and probably prayed they were wrong. Again, that's human nature. Not everyone immediately becomes civic minded and does the right thing right away. Most people don't want to be involved with something like a dead body. It's like that case where that woman got assaulted and killed in an apartment complex, and most people just ignored it and did not call the police. People don't want to get involved when it's something horrible, and especially if it's something involving death. I don't blame the towyard guy or anyone else who smelled that trunk that didn't immediately call the police. I'm not sure I would immediately do it if I smelled something death, knew it was death I was smelling (I've never smelled death, thank God, and I hope I never do), but didn't have a body to confirm it was death. Cindy finally calling police was a brave thing she did. She couldn't ignore that smell and Caylee being missing anymore.
I'm not saying they had the right reaction, btw. I'm just saying they had a very human reaction to it.