They did. OP also neglected to mention that this was forced by the music industry threatening to sue them into oblivion if they didn't put it behind a pay wall.
Musescore did have separate listings for PD or CC-licensed compositions, vs. "no copyright is intended, wink wink" ones. They could have allowed access to the ones that were properly licensed.
Yeah. Lots of things that were uploaded to this cloud service were transcriptions or complete rips of sheet music of in-copyright works. Sheet music is also copyrighted and when the music industry found out about the service, it got strong armed.
There's a lot of sheet music that's absolutely in the public domain, though. Most of what's on IMSLP falls under that. (IMSLP only provides raw scans however. There is an Open Scores project that's supposed to work on making machine-readable versions of those in Musescore, but I don't know if their output is freely accessible outside their cloud platform.)
If you listen to a MIDI video game track and use your ear to write a violin-and-piano arrangement, do you own the copyright to your arrangement, or does the original composer?
The original composer still owns the copyright for the composition but you own the copyright for the performance. Just like if you sang someone else's song.
Much like cleanroom-written code, these are often made without ever looking at the official sheet music, just hearing some synth midi and figuring out a neat way to replicate the general idea using traditional instruments.
But yes, apparently it would be violating US copyright law to rearrange music this way.
There's no way that were completely unaware of this possibility when they started the service. They did this intentionally to get as big as they possibly could before the music industry came after them, leaving their users high and dry in the process.
You can't start a music platform without having some sort of peripheral awareness of how litigious that industry is. They could've tried to build it out more responsibly early on and chose not to.
