Really, borrowing MikTeX's install-on-first-use for packages and making documentation optional should result in a much more reasonable size. If you want to get fancy, teach LaTeX how to decompress packages on demand.
For the record, I do not own devices based on iOS or Android and I don't care for your little Apple-Google feud with which you seem to be so concerned with. So please, carry on with those market statistics about Android, I am dying to know more.
To get around it, you'd have to make it In App Purchases, because these also come from a the App Store.
From that quote ("A 4GB TeX distribution dependant on over 100 binaries is not acceptable on the iPad."), it is clear that he is musing about a scenario where he ships all 4GB. As stated many times (and also in that same quote), on the iPhone you are forced to ship something as one executable. Thus, the theoretical distribution he is referring to would in fact be a single executable of about 4GB. In fact I think that's the whole point of those two sentences. So it appears that I was indeed quite careful.
On the other hand, yes the executable must be "one". On the other hand you can download stuff (either directly or via DLC). The issue is that while Apple has relaxed their restrictions on bundling interpreters in applications (you can do that), they have not relaxed their restrictions on downloading interpretable code: it's not allowed. So downloading even styles would be verboten, since styles are TeX, and TeX is executable code.
AFAIK Apple doesn't restrict you from bundling files in your application. That simply wouldn't make any sense.
The point here is that he is talking about an application consisting of a single runnable binary of size X with tons of bundled .sty-files that brings the whole application up to 4GB.
Previously, this would not be allowed, since .sty-files are interpreted (which in turn would make it impossible to implement LaTeX on the iPhone), but that really wasn't the point here. The point is simply that this wouldn't be a single 4GB executable, but a an executable of perhaps 100MB bundled with a whole bunch of .sty (and other) files to a total size of 4 GB.
Edit: Fixed typos. Sorry. HN doesn't work very well on my phone.