Do people really think stuff like this makes you look cool? It's super cringe. The only way you get away with being that stupid and that much of an asshole to a room of adults is by being the CEO. This isn't some insightful observation, if the phone was waterproof the demo would have just looked silly as it sank despite having available room. Why did you even ask the question if you already decided the answer?

The engineers know that the phone isn't literally a solid brick of electronics and "can't be made smaller" is normal human speak for "can't be made smaller without time and money we don't have to do it." The smart thing would have been just saying he wanted the iPhone to be smaller, money and resources is no object and we're willing to dedicate time/people to this project to get proposals put together.

Jobs was very good at his… uhh job but stuff like this isn't an example of it.