Yes, they say the blood is toxic but it doesn't come up again, we don't see how toxic it is and what effects it has on people. We just get a brief glimpse that looks like an oil spill. Later Pearlman says that other parts of their corpses are beneficial, so it's not even internally consistent. It's not like it's acidic and melts people.

Further, the logic of not using offensive weapons to kill the kaiju makes zero sense if the Jaeger loses the fight and the kaiju has free rein to destroy the city and kill essentially everyone. One would assume that most people would go underground, and you'd have clean up crews to prevent major damage from some blood... certainly the damage to the city would be a hell of a lot less than the destruction wrought by throwing the beast around into buildings.

And again, why are they being fought in populated areas at all? They clearly have a very effective detection and tracking system in place, yet they can't intercept any of them before they hit the cities?

That's one of the main problems with the film, it portrays humans as stupid, both at the strategic and tactical levels. Same thing with the walls, how anyone could have thought that was going to work is baffling given what the film shows. Why weren't coastal defences set up with plasma cannon emplacements, sort of like a modern Maginot Line? Why wasn't there an high altitude airforce equipped with the powerful missiles? Why wasn't there a laser/missile platform in orbit?

If the world was truly as fleshed out as you say, all these issues would have been addressed in the story. Instead, human beings ignore the flaws of the Jaeger approach (one bright crew thinks that throwing a creature into water will do something to it!), and build a bloody wall.

Also, why didn't Gipsy have a sword at the begining? Why didn't they lead with the arm cannon in that fight?

It's the equivalent of coming up with an ultimate weapon to fight zombies, and it's a boxing glove.

What a disappointing experience. Moments of awesome wrapped in a poorly reasoned mess of a story.

I honestly can't remember ever questioning the events and motivations of a film so much. The central problem of the story is that the reason for the Jaegers' existence hasn't really been thought out. So we have repetitive  battles, with robots ineffectually punching or throwing around monsters for long stretches, only to pull out a sword at the end or shooting missiles or a plasma cannon that could have been better delivered by other means. And the world around everything's so poorly set and developed, we're apparently led to believe that walls were the better alternative? If you can't build a tank to stand up to an attack, a wall built with essentially the same materials isn't going to do shit either.

It wouldn't be such a problem if they hung a lantern on the ridiculousness of how badly the Jaegers approached the fighting... like in Iron Man 2. "Next time, lead with that!" But that half of the movie seems to take itself too seriously (the Ron Pearlman half is of an entirely different tone).

Thus one of the main plots of the story, the kaiju adapting, is demonstrated really poorly. Why not simply show an arms race developing over the course of the war, with increasingly destructive weapons being employed by the Jaegers against the larger kaijus coming through, weapons that ultimately mean harming our own planet in the long run? Instead, the Jaegers are boxers and wrestlers, the equivalent of a tank trying to run over its opponents instead of firing its main gun. And they don't appear to change at all over the course of the war, other than going digital. What makes a Mark 5 so much better? It falls over once in water and half of its systems fail!

I really enjoyed episode 3 more than the first two for some reason. I found it to be more fun and we actually got character development.