Hi,
Try to answer your questions point by point:
1. You could add to your terms & conditions that sites created need to follow Google webmasterguidelines - and if they are not followed you can delete the subdomain.
2. Revoke the penalty is only possible by cleaning the site and removing the contested content. It depends on your current terms & conditions if you have the possibility to force the one who is managing this blog to clean the site.
3. Idem as above - if your terms & conditions didn't stipulate that messing with Google guidelines is forbidden, there is not much you can do at this point.
4. Wordpress is hosting the blogs on wordpress.com - the main site is wordpress.org. Weebly has terms & conditions that forbid Spam/SEO sites (probably Wordpress.com has this as well - but it's stated very clearly on the Weebly.com)
Update terms & conditions if necessary - send warning to offending blog users & delete them if necessary.
Hope this helps,
Dirk