My guess is the radio station did know, and assumed most people did know as it's fairly common knowledge to me, and thought they were covering their behinds by telling contestants to stop if they felt sick. (I suspect most people don't know you can die, but even when I was a kid there was the urban legend of getting 'drunk' that way, though most people ran to the bathroom first).
Considering the object was to hold water, not drink it, they may have thought they were in the clear.
Still, I find it bizarre that no one got medical attention for the woman when she was crying in pain. On the other hand, if she was able to drive home, perhaps she dissauded them from getting her assistance?