Lets say I mint an NFT of Mickey Mouse. I don't own that image since it is protected by copyright.

Not any more. So let's choose Minnie Mouse instead.

First created doesn't mean ownership or authenticity.

Agreed

To be legally compliant, there would have to be some central authority to take down the offending IP on another contract, but blockchain doesn't offer an ability to do this.

Incorrect. An NFT of Minnie Mouse would not be legal, but that doesn't make other NFTs of other art illegal.

Or lets say my house deed was on the blockchain and a hacker stole my secret pass phrase and took my deed. He doesn't have legal authority over my house.

Agreed. Stealing the crypto key is as exactly as illegal as stealing a physical key and claiming ownership.

Sure we can mitigate these issues with a central authority which can roll-back transactions on the blockchain

No need to roll back. The legal contract can be made to point to a different nft.

but if we are using a central authority then there isn't any usefulness of blockchain over a traditional database.

In this case the blockchain removes friction. Real world enforcement of laws is centralised because society demands it.