I tend to think its the latter. If you look at the actual text of the bill...

(a) Novelty; Prior Art- A person shall be entitled to a patent unless--

(1) the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention;

... it seems to indicate that prior art is still applicable when considering the validity of the patent. However, it's still not clear to me if prior art can be applied after the fact, or just during that 9 month period.