I don't see how that's the "stupidest thing" about it; the members of Starfleet and citizens of the Federation dedicated to upholding it aren't gods, there are limitations to what they can do. They have a law in effect meant for the long term benefit of the less developed cultures they encounter, and the best they can do to enforce it to the fullest extent that they can. What else can you do? Have them say, " *beep* it, we can't ensure this rule is absolutely followed by everyone, so there's no point in anyone doing it"? That would be stupid.
To that end, by some account there are instances where it extends beyond the Federation, at least to some degree. In the TOS episode "A Private Little War," when Kirk visited Tyree's planet, Kirk and McCoy worked to collect evidence of Klingon involvement, that they could take back to Starfleet. There was at least the general concept that the Klingons were helping the some of the people to develop their advanced weapons in secret, rather than being overt about it, because they weren't allowed to - officially, at any rate.
I could be mistaken, but I can't think off hand of any other instances where the Federation abided other galactic powers to flagrantly influence less developed cultures. The closest might be Cardassia's occupation of Bajor, but Bajor wasn't that under-developed; and by some of the description of the relationship between the Occupation-era Cardassian government and the Federation, they were not on the best of terms during at least a large portion of that time, if not all of it. In many ways it seemed to mirror the Cold War-era relations between Russia and the US, with some heated conflicts.
“He lied to us through song! I hate when people do that."