GlobalNav,
You're absolutely right. Challenge the clearance. About 8 hours ago I departed with another Captain from an airport in the Canadian Rockies. The clearance was to 13,000'. MSA is 14,000'. We challenged, they said 13,000' was fine. We departed because we are both very familiar with the area and it was screaming VMC - but agreed between us we would not have departed in IMC or MVMC. Once airborne we called the controller and asked for clarification. He was astounded at his mistake and re-cleared us up to FL250. So you're right, not the first time - and it can happen on both ends of the mic.
In fact, reading through the report that was attached to the website, it seems the pilot did mishear the clearance like you suggest...but then never confirmed what "Flight Level Two Hundred" meant.
As for theEGPWS...yep. It's a great tool when all the conditions are met to use it. I routinely have to remind my co-pilots to turn the weather radar on. In our type the EGPWS is inhibited with the radar off. We only use it 5% of the flying we do, so maybe its the same thing here - it's never used so it was forgotten about???