Yes, that's the point. DHH isn't recommending removing all rules; he's recommending eliminating the approval process to get apps/updates into the Store. Apple would still, of course, have the ability to remove apps that violated the TOS.

The Android Market is run in just this manner, and it isn't overrun with pornography. So having rules and enforcing them but not having to pre-approve every release seems to work.

Gratuitous updates are a problem on Android.

While there do appear to be some developers pushing fake updates, I'm not sure that exactly constitutes a problem. If it ever gets out of hand, there are a lot of ways this could be managed that don't involve pre-approval.