My views for what they're worth.
It never ceases to amaze me how a couple of simple questions/observations can lead to such critical analysis of another aviaitor. From the original post I would like to ask a couple of questions and make a couple of observations and comments.
Did the observer/s know the PIC
If not how do you know that he/she is not IFR rated and not simply practicing to remain competent (the aircraft may actually be rated for IFR flight).
[*]From my research (Australian aircraft register) VH-JVB is a Cessna Conquest registered to a company operating out of Darwin (I would therefore be questioning the powers of observation of the observer).
[*]For the purposes of this discussion lets assume it was actually a 172 and not a 441 conquest and the weather was as stated and the date was the 26th (Sunday) and not the 24th.
[*]I would question though if the wind was west to south west why he/she was using RW36 and not RW18?
Point 1:
I'm unfamiliar with the area but it seems apparent to me that there are several suitable alternates within 50NM from Shepparton that the PIC would have been able to divert to had the weather deteriorated to such a bad state that he/she was unable to land at Shepparton.
Point 2:
The maximum demonstrated cross wind for a 172 is 15 knots and according to the observer the conditions were 15/gusting to 21 (I'll assume this was from the AWIS and not forcast or estimated) so not outside the parameters of the aircraft capabilities.
Point 3: As the thread was titled
"Scud Running", as a VFR pilot, next to low level beat-up's is probably one of the most dangerous activities that you can partake in, you need to be extremely competent and current, know exactly where you are at all times (as you are changing direction constantly, and not relying on your GPS as your eyes need to be outside), know your aircraft and its limitations intimately, right to the edge of the operating envelope, know how to complete a box canyon turn (http://www.pilotfriend.com/safe/safety/canyon_turn.htm) without thinking, be able to fly your aircraft as slow and as low as required to maintain control (hang out the flap if necessary) and terrain clearance, don't panic, always have an escape route (monitor your back door) and be prepared to land anywhere if required. This will keep you alive, if you don't have all of the above don't do it. Remember if you absolutely have to get there drive.
So how do we become competent, and what is competent and current?
According to the rules to maintain your licence (currency) you are required to have completed 3 take off's and landing's in the preceding 90 days. Are you competent? Only you can answer that truthfully, but I would not be flying with you (without a set of controls in front of me).
Competence comes from training and practice - training in conditions (in which you are neither competent or comfortable) with a suitably qualified instructor, in the situation of "Scud Running" I would suggest finding an IFR rated instructor and aircraft and do your training in that (may cost a little more, but may also keep you alive or at least out of the dirt), you may also be able to log some real instrument time and this could prove invaluable at some time in the future, if nothing else it will alert you to the danger associated with inadvertant entry into IMC and how quickly spatial disorientation can occur and that will kill you.
Practice as often as you can just below your level of competance, if you are competent with 5 knots of cross wind practice with 4 knots until you are so comfortable with it that it seems normal and progress from there.
To answer the questions posed
Would I go flying in those conditions - I would have to see the conditions first hand to determine the thunderstorm threat, other than that - Yes providing I had a viable exit strategy.
Would I undergo training in those conditions - Absolutely, (with the right instructor and aircraft)
I don't condone dangerous flying but any flying can be considered dangerous if you're not competent even on the most perfect of days.
Remember don't judge others based on your own level of competence and comfort (they may be trained for what you deem dangerous), by all means discuss it and learn from it.
Enjoy your flying.