The GM's responsibility is to tell a story, and to try to ensure everyone at the table enjoys it. Since different people have a different view of what is fun there's no way to say that a GM should always provide this or that thing. If you'd read the context, and the situation clearly you'd see that both of these responsibilities seem to have been upheld.
Besides that as a GM I have been in so many situations that would have been a conflict of interest (as you describe above) if I was not aware that my only interest was the table's. Realizing that you're not opposed to the player, but working with them is what makes a great GM.
It's not the GM's responsibilty to tell a story. Maybe the game can be played that way, I don't know, but its not the automatic default. The context is that the GM and the player disagreed about what should happen, and about what would be more fun. This shows that there is some sort of breakdown going on somewhere in the game. This is not a sign that everything that happened was perfect for his groups social context.
You misunderstand what I mean by conflict of interest. It's in the GM's best interest to make the conflict with the NPC something that poses a genuine threat the the PC(s). This responsibility is spelled out in the rules. If the GM is also given the responsibility to manage credible opposition against the NPC, then he is forced to choose whether he will manage that opposition credibly, thereby undercutting its ability to oppose a PC, or whether he will advocate for the NPC being a threat, thereby undercutting the credibility of his opposition to the NPC. Characters cannot gain +24 shift attacks without having the opposition to those maneouvers and declarations being managed by the GM. Thus, if the GM pretends to treat the NPCs the same as the PC's, he has introduced a clear conflict of interest, in which he must abdicate one of the responsibilities he has taken upon himself. If he wants to create an unwinable fight (for the "story"), he can do so without such a conflict of interest by treating the situation as a pure compel, or even by just saying "your character falls in love, no recourse" if the group will put up with it. But the GM cannot credibly approach the situation in the way the OP described without messing something up.