Seriously! They do suck!
Are they colourblind or something...because maybe it's just me, but I could definately tell the difference between solid coloured Mario and see-through blue Mario. Jebus!
Even if they did have a color vision deficiency, it still wouldn't matter because of the pattern of Mario's clothes, the color of his 'stache, etc. I'm pretty sure the Piantas could distinguish between a normal human and blue version of him that has moving patterns of water and/or changing tie dye shades of blue all over him. Oh yeah, glowing eyes might set off a red flag.
They can have a judicial system and sentence Mario, but can't figure who is actually doing it.
See, if I were Mario, I'd tell Peach to be like "um... im a friggin' princess here. im like the pope/president/dictator/commander/etc. around here get him out" and then, after getting out of jail, I'd screw cleaning paint up and go find Baby Bowser, then I'd Smash Bros. his stupid little @$$, bring him back to the judge to prove my innocence, then hire a lawyer to pinpoint exactly what laws were broken in the court of law and sue Isle Delfino/Delfino Plaza/whatever it'd be called.
EDIT: Answer this for me.... why do Piantas walk normally in SMS, but they hop in Mario Power Tennis (the intro vid)?