Many years ago I used to fly in uncontrolled airspace in northern Canada. All pilots gave position reports and provided their own separation. It worked very well.
Today the responsibility of separation lies solely with Air Traffic Controllers on the ground.
It is not the responsibility of the pilots to question an assigned altitude. Altitudes are assigned by ATC after giving consideration to all the traffic in the area. Often aircraft are temporarily assigned "wrong way" altitudes in order expedite the flow of traffic.
Aircraft warning systems are designed to give different levels of warnings to the pilots. Some warnings are very important and other warnings are not so important. The "transponder off" warning is a very un-important or non-critical warning. As a result it is very easy to miss.
These pilots were busy trying to establish radio contact and it is easy for me to understand why they missed a non-critical warning.
It is non critical because a transponder does not affect the ability of the aircraft to stay in the air. The aircraft will fly all day long without a transponder. The transponder does not separate traffic. It is only a tool that makes the job of an Air Traffic Controller a little easier to separate traffic. Again, it is the Air Traffic Controller's job to separate traffic and no one else.
These pilots did nothing wrong and it makes angry to see people with very little practical knowledge of Aviation and Air Traffic Control try to speculate on what should have been done, or what could have been done by these pilots.