How could Letsencrypt even verify a server setup if not via DNS/HTTP? Also, verify against what? The servers are basically random strangers without identity when they first talk to LE.

This happens all the time when a server is rebuilt from scratch - same cert using a different keypair.

So should we conclude that SSL cert infrastructure is completely compromised and now any country can issue fake certificates?

No, there is no reason to jump to such extremes.

There are approximately 10 Tier-1 ISPs through which majority of Internet traffic passes, and unless I misunderstood something, they can issue valid certificates for almost any domain. To me it looks like "completely compromised".

Every CA can issue valid certificates for every domain? And it always has been that way.

CA has a risk to get their root cert removed from browsers; ISP doesn't risk anything especially when asked by the govt.

They risk having their peerings cancelled. Also it might be a crime in some countries.

Over the DNS challenge, of course.

This is exactly the same as all other CA's do this.... for DV-certificates you basically place a key/special file on the webserver, or receive a verficiation code via (plaintext) email.

For EV certs there might be more validation, but users will never see the difference between EV and DV certificates.

So SSL certificates are completely unreliable; we should only wait until Russian or Chinese comrades find a good use for this attack (e.g. temporary redirecting Western traffic using BGP to validate a Let's Encrypt's cert for Western site).

yes? this is a well-known problem, which is why CAA-ACME etc and certificate transparency logs exist.