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During the keynote, they mentioned the face recognition and other ML processing happens on the phone hardware to protects your privacy.

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Oh good, well at least it's not being calculated on a device with a constantly scanning promiscuous radio.

If someone hacks your phone, they can get your photos regardless of whether your phone is doing facial recognition on them.

Yes, that's exactly my point. The article portrays the facial recognition as "safe" because it occurs on an iPhone. iOS is not a secure enclave, and pretending that it is can be very dangerous.

If it's closed source and you have little-to-no control over the software, how much of a difference does it make?

Interestingly the results of this still end up on iCloud by the looks, and it back fills from iCloud (will that add big battery drain for first install of iOS 10?)

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