So here are the questions:
1) Did the shop owner know the acrimonious freelance instructor was renting one tank for 4 ppl? Because if he/she did, then the shop owner should bear some form of responsibility as well.
Not really, there is no standard as to how many tanks need to be used during Confined Water, only that a student must assemble/disassemble a set amount.
2) Why were the OW students willing to go with a freelance instructor that is so cheap that only one tank of air was rented and shared amongst 4 people?
In this case Freelance refers to someone renting the tanks from a dive outfit, rather than the person being an independent. Most instructors who visit Tioman with students are tied to a shop in Singapore. At least they were in 2010 when I worked on Tioman
I've seen some and heard some dive outfits in the region that I walk away and shaking my head because of the money grabbing nature of the operators. But this one is definitely the lowest of the totem pole from what I've seen and heard.
It's a sad story, hopefully many will think twice before trying the same.