We're getting a little off-topic here, but I always thought the point of the squid was that it was so terribly out of place in the realistic setting. There's a lot of plausible deniability in terms of "Did the Doc really just set off a bunch of bombs and then basically fuck off?" On the other hand, if you materialize an immense psychic octopus into the middle of an otherwise relatively sane New York City, people are going to be so shocked, so utterly confused by how coked-up and out there what just happened is that they'll choose to believe any bullshit you feed them about space aliens or whatever just to come to terms with it. The world's seen Big Damn Explosions. It's something that humanity has some kind of grasp on, despite its magnitude. You drop something truly inconceivable on the world, and people won't know what else to do except huddle.
Also, nobody's ever going to implicate Veidt in a conspiracy to create a giant god damned octopus.