Count me in as one of the confused as well.+1, was thinking the same thing, the way this story is presented doesn't smell right to me at all. Steve even said it was intel compatible on stage during his first keynote after returning to Apple.
I'm not saying something like this didn't happen, but as-told it just doesn't seem to line up with the fact that NeXTSTEP supported x86 (and Sparc), and that Rhapsody for Intel was announced not that long after Apple purchased NeXT (1997 if memory serves), around four years before the timeline being discussed here. Or the whole Red Box Windows compatibility layer, for that matter.
Maybe the story here, getting muddled in the translation, is that that the engineer in question had it running on stock Wintel hardware, not something custom. That would make a lot more sense.
Let's also not forget that the really big deal with OSX on Intel--what made it such a painless transition, and probably the main reason it was so successful--was the incredibly-fast API-level PPC emulation in Rosetta. Which was technology that Apple licensed from Transitive years later. Without that the transition would still have been slow and painful.
Another aside, to those asking about/commenting on speed back in the mid-'00s, it's worth remembering that the G4 and G5 were generally a lot faster than the competing Pentium series of CPUs (the G5 was generally being compared, speed-wise, to big-iron Opteron and Itanium CPUs), but that the Core series of CPUs really shook things up (on top of IBM's difficulty getting the G5's power requirements down). The Core chips, while initially intended for mobile, were in most cases ridiculously faster than Intel's own Pentium 4 desktop CPUs--it was a tremendously improved architecture, with dual-core capability to boot. While there were some Windows compatibility arguments to be made, if Apple had switched from the G5 to the P4 (which I think was what the early dev towers used), there would have been waves of complaints.
I seriously doubt that it's a coincidence that both the Core Duo CPU line and Transitive's technology lined up before Apple actually made the jump.