a more typical way would be to give people equity based on impact with vesting - which, i think, avoids a lot of the morale downsides. i'm curious why he didn't do this instead.
Because giving out equity leads you down a path to going public? Not everyone wants to go public if you rather enjoy running your company as you see fit and just having fun doing it.
Because then you're the kind of person who concerns themselves with equity and vesting schedules, which Notch doesn't seem to be.