I dunno, somehow I think if we just returned our bodies to the earth (with the minimum of processing), things would all work out.
I like the idea of these natural cemetaries. Bodies are not embalmed and are buried directly in the ground, as I understand it, whenever one wants to dig. The place is marked for a time so that it is not disturbed while the body is decomposing. The grounds are tended as a natural park/garden with paths, flowering plants and trees. No headstones. There is unlimited room so long as there are no huge crowds at once. Sounds nice to me and sounds like it might be the way things were intended.
What you describe is a dangerous vector for disease and should not be allowed anywhere near where people live or get their water. Even centuries ago bodies were buried with lime and other chemicals to keep things sanitary.