> So... when you find a bug in one, the only thing to do is an OS upgrade?

Yes. Which, ideally, is cheap and easy to do.

> And what about new APIs that come along? Will third-party libraries exist at all, or will users have to wait for an OS upgrade to have applications that can take advantage of them?

We can see how this works today. Third-party libraries exist, application authors benefit from being able to version them at-will (and not be tied to the same version everybody else uses), and if anything grows sufficiently popular/necessary/duplicated, the functionality can be integrated into the OS (an occurrence of which there are numerous examples).