It's enough for them to place this policy and enforce it when they become aware of violations. Someone reading the slopped paper (or, here, trying to follow a reference) will notice sooner or later.

> Being required to publish in a peer reviewed journal will close off arxiv for many researchers for good. It also defeats the point of it being a pre-print.

You sound like it's impossible for researchers to write papers without slopped references, and inevitable to get hit by this policy.