Having traveled in that part of the world I'd point out two things to you:
1) Malaysia,and nearby Indonesia,have large moslem majorities.The Bali were,IIRC,Indonesian. 2) Possible explanations for a passport SNAFU...a computer malfunction,not surprising in one of the most primitive regions in the world...or collusion by one or more moslem sympathizers working the passport/check in desk.
Not sure why Indonesia keeps getting brought into this, given that apart from seven Indonesian citizens (probably Christians) being aboard the plane this story has diddly squat to do with Indonesia. Any security lapses or other related issues appear to lie at the door of Malaysia, China and Thailand.
Just for the record Indonesia’s passport analysis is far from “primitive” in fact it is much more rigorous and thorough than in many western countries where a bored official usually just waves people through with a cursory glance at documents. Indonesia like neighboring Singapore subjects each passport to a computer check which brings every detail up on screen for the officer examining it. The officer spends usually about three to five minutes with each arriving passenger, often longer, the queues for each flight can take an hour or two.
Trust me there are far, far fewer illegal immigrants in Indonesia than there are in the US. The punishments for being an illegal alien are a lot tougher.
For the record I don’t believe the stolen passports are related to the loss of the plane. Why would a suicide bomber who knows he is going to die care about being identified? Why would he book onward flights? The passports were stolen in Thailand, the tickets were bought in Thailand the onward flights were to Amsterdam. I am guessing they were drug smuggling.