Prior to reading this the only thing I knew with certainty about a 7805 was never to use it to pick up your PCB. They get a little toasty when shorted, and I've burned myself on them more often than on my soldering iron.
But of course, this happens a lot in experimental circuits.
Also check out the temperature derating curves.
That series has a thermal shutdown ckt so "operating nominally" above boiling pt is kind of hard to define.
There are also non-regulator thermal issues, like most cases are not designed to operate continually at 125C internal temps, and the electrolytic caps nearby the reg have their lifetimes drop with some polynomial of temp above room temp so smoking hot reg isn't good for everything nearby even if isolated by itself it would be OK.
Finally the general idea is still true, that you can get a nice 2nd degree burn or think something is "really hot" at a temp well below rated.
There are plenty of high power transistors rated to 150C junction temp. Not impossible with a really good package and heatsink (low thermal resistance) and good assembly technique to be able to boil water on one of those. As a stunt in the lab everyone tries this sooner or later to see if their anti-thermal runaway ckt is good enough and their assembly technique is good enough.
Starting in the 80s Low Drop Out LDO regs started hitting the market, using mosfets as the pass transistor instead of bipolar trans (and a few other changes) means you can run with much lower voltage drops.
However, legendarily, the bipolar voltage drop automagically provided some oscillation dampening and the LDO regs are notorious for being unstable, almost as much of a PITA as using a switching reg, almost. So sometimes with reactive (usually inductive) load at certain currents and voltages, they turn into little RF oscillators. Sometimes the oscillation is too high of a freq to interest the overheating and other self protection ckts so they literally catch fire and so on.
These 80s stereotypes of LDO regs have been continually improved since the 80s so they're somewhat more stable now.
Part of the shocker of both the bad 7805s in the story and the oscillating 80s era LDOs is the 7805 series used to be legendarily bulletproof because they have a lot of self protection circuitry built in. Blowing one up is non-trivial compared to most other chips. Usually decent reverse current protection, some reverse polarity protection, overheating protection, short ckt protection, they're pretty touch chips, so its surprising when they aren't.
I guess BJTs at that power level are slow, as opposed to mosfets, which are much faster, so there's that as well.
Between different manufacturers there is easily an 10x difference in price of 7805, so counterfeiting is certainly worthwhile, even more so when 7805 is more of a description of function than of implementation. 7805 means three-pin linear regulator with dropout <= 2V, such and such accuracy, line/load regulation and noise and typical design uses these parameters, not actual parameters guaranteed by given name-brand manufacturer (which are sometimes significantly better than for original LM7805), so mostly no-one will notice if you take random Chinese 7805 and repackage it into name-brand package.
What I know, is that about 5 years ago I have found part marked NEC uPD2805 (or maybe 2905) in power supply for Canon fax machine and somehow found out that it is 7805-esque voltage regulator and used it in my bench power supply as such.
Also, these parts have a brand logo on them, but are not made by that manufacturer. If Hyundai sold cars with the word Honda and a Honda logo on them, without permission from Honda, they would indeed be counterfeits.