1. Why is this even allowed by the software?
Software is simply a set of instructions and algorithms that a computer can execute. When you get in genealogy, that makes it hard to set explicit rules on what can and cannot be allowed.
Obviously, having one profile as its own parent (or spouse, or child) is troublesome. But let's not point fingers or blame the site - it is just doing what we tell it to do.
2. How do I correct it? I've tried with no success.
I am not sure what you have tried yet, but it looks like you got it sorted out 
For reference, in Edit mode of the profile, look tot he right side and there is a list of relations. You can choose the [add/remove relation] option.
3. Why is there not a very noticeable warning that you are making such a mistake?
See 1. above.
