This stylus is an optional accessory with a very specific use case. A fundamentally different thing.
Oh, a stylus, right? We're going to use a stylus? No.
Who wants a stylus? You have to get them, put them away, you lose them, yuck. So let's not use a stylus.
We're going to use the best pointing device in the world; a pointing device that we're all born with - we're born with ten of them. We're going to use our fingers. We're going to touch it with our fingers. And we have invented a new technology called multi-touch..."
The important part of the quote in this context is that Jobs was obviously referring to the stylus being the primary input device for the iPhone being unacceptable.
"It's like we said on the iPad, if you see a stylus, they blew it." - Steve Jobs
edited to add -
"as soon as you have a stylus, you're dead." - Steve Jobs
It's pretty clear he meant "when you see a device can only operate with a stylus, it's a bad product."