This is a question that has been raised about the patent system many times. Attempts to patent inventions based on pseudo-science are as old as the patent system itself. Just have a look through the USPTO Perpetual Motion Machine Collection, and you will see that the USPTO is familiar with these attempts and has an institutional memory on how to address them.
The USPTO has to walk a fine line, and they are able to do that based on a set of examination rules that have been refined over the years.
Just imagine if the USPTO had adopted an extremely conservative view of what constitutes real science, resulting in the rejection of all aircraft, spacecraft and nuclear fission patents in the early 1900’s because they were considered to be in the realm of pseudo-science.
In general, the examiners actually do a pretty reasonable job at rejecting claims based on pseudo-science, as demonstrated in this examiner’s response to a patent on a time machine.
In the case that you mention, there was actually a grant issued (US 8,058,483). Now compare the claims in that grant to those in the application(s). You will find that in order to obtain a grant from this application, the examiner required the inventor to limit his claims to something physical that can be reproduced, and the resulting claims are very narrowly defined. To paraphrase an answer to a different question, “industrial applicability is not a requirement under U.S. patent law”.
The USPTO is mandated to provide all filings to the public, which they provide through their Public Pair database (MPEP 103, Right of Public To Inspect Patent Files and Some Application Files). If you look at the Image File Wrapper for that patent, you will likely find some interesting back-and-forth discussions between the examiner and the inventor that illustrate how the examination rules are applied in these cases. I’d like to highlight this as a counter-point to your statement about the pollution of innovation by hoaxes. Hoaxes are going to happen no matter what, and at least in the case of patents there is public discourse available as part of the permanent record.
As far as an application or issued grant lending credibility to shady businesses, that may be true to some extent, but policing business practices is well beyond the scope of the USPTO, which receives its mandate from Congress (United States Code, Title 35) as authorized by Article I, Section 8 of the U.S. Constitution. As a corollary, consider the inability of the U.S. Postal Service to regulate junk mail, a shady business practice that is outside of their mandate.