Every listing has a seller's ID associated with it, I'm sure. It's not really that complicated to add a "where" clause that excludes seller IDs that appear on the "blocked" seller list of the user doing the search. There might be a performance hit but it could probably be mitigated one way or the other. I think it's just not a high enough priority feature to allocate resources to it, which I can understand.
Seller: If you don't leave me favorable feedback that helps grow my business by promoting trust in my ebay brand, then I won't leave you a useless green dot that benefits you in no way whatsoever! Me: Okay, you've got a deal!
