A very interesting article on the SSRI sertraline and research done for aircrew and psychomotor performance:
http://www.biopsychiatry.com/zoloft.html
Why not in the correct and controlled circumstances? In the majority of cases SSRI's, combined with Cognitive Therapy, are very effective and the drug mostly does not affect a pilots ability to fly once stabilised - you only get to hear the bad stories and not the good ones. SSRI's are not perfect and a lot of caution is needed in their prescribing, however, they can really work and not impare a pilots judgement after being settled on the drug. I know someone who swears that an SSRI literally saved his life - and he flew throughout his treatment! An SSRI can get you out of the hole and the Cognitive Therapy can keep you out.
I am sure that grounding a pilot will make his condition a lot worse in the long run. I am certain that the fear of grounding makes conditions a lot worse due to the self feeding nature of anxiety and depression related disorders. I think the current policy probably ends up with most cases going unreported (time bombs waiting to go off) and some self prescribing born of the fear of grounding and loss of livelihood.