It isn't Google's fault. It is the fault of whoever supplied the data, in the case of KW it's Maponics and Tele Atlas. From there, you go to wherever they got their data.
Probably:
http://atlas.nrcan.gc.ca/sites/english/maps/topo/map
Map sheet 40P07.
Also note that the names of places in Google Maps aren't just arbitrarily added to the map by people, they're from the data they used to create the map. Only communities that were once named separately on topographic surveys will appear on that map. Thunder Bay only has two named neighbourhoods on Google Maps, and many "villages" in the country that are named don't actually exist. (They represent water stations for the steam railways!!!! Along lines that haven't existed for 90 years!) All maps are going to have errors and all map data is going to have little features, like non-existent crescent streets, to detect copyright infringement.
Google Maps reverted to old data a while ago, based on the national surveys from the 1970s and 1980s. I don't know why. It isn't unique to Waterloo.
As for arterial roads, the city designates those based on traffic data and what they define as arterial, secondary arterial and collector roads is going to be different from what shows up on these maps. I don't know how mass produced maps determine what roads are arterials and what roads aren't, but I can tell you that on almost every map I've ever seen, Thunder Bay's third busiest street is labelled as a side street, and was before the data changed on Google. They're not "picking on you".