A) Valve should not stop casinos from profiting off vulnerable people, because they have already made money off those people and it would somehow be unfair to stop now, which to me sounds ridiculous.

My argument isn't that Valve shouldn't ban them if they have the means. Its that Valve cannot effectively ban them without penalising unrelated users just as much or more. The body that does have the means to do so without putting random users in the crossfire is the government.

You are using this as an argumentation that the government should ban them instead of Valve, but the end tesult would be the same. The casinos would walk away with the money, and the victims would be left to cry over it.

In a lot of these cases, even under current law, the government could be fining the individuals running these casinos. As they are run with effectively no oversight, many are blatently rigged, rely on false advertising, or use shoddy, under-the-table finances. That was what the first big crackdown was over - not the existance of these casinos, but the revelation of how rigged they were. As exemplified by the mob tactics being used by these casinos, they haven't changed. Depending on the location, laws could also be implemented in ways that do go into effect in more aggressive ways, upto and including fining casinos for past actions if its really needed (and to be clear, I wouldn't be opposed to fines like this being applied against Valve either.)

B) Poor Valve could not compete with their competition if they didn't have the money they are gaining from their gambling-adjacent market, which to me sounds even more ridiculous. When Epic attempted to pry open the market using one of the biggest and most successful games ever as a leverage, they largely failed because the Steam user base was too entrenched. Steam is literally printing money right now and they don't need the CS skin money to compete with anyone.

When talking about CS, we're talking about an individual product, and one that is competing with other products where lootboxes and other manipulative tactics are already the norm. As you said, this isn't about Steam. Valve is still a buisness, and their products are still a part of the market. They're not going to just spend money to run a game they lose money on. Even if they do stop selling lootboxes, that doesn't fix much because you've got thousands of other companies also trying to hook the same addicts on their gambling products. Instead, you need to impose limitations industry-wide, to ensure one product can't get ahead by just being more abusive. Since we obviously aren't going to have Valve, EA, Ubisoft, Epic, ect. all come together and agree to stop putting gambling in their games, we need a higher power to do so, that being the government.