OK, perhaps I'm a bit confused here, but this app allowed you to create a fake digital driver's license on your device, correct? So, unless bartenders/TSA agents/law enforcement are going to accept, "I'm sorry, I don't have my ACTUAL driver's license with me, but here's a picture of it on my iPhone," you'd have to save the file off, mail it to yourself, print it out (likely multiple times to get the size right), and then what, paste it over your ACTUAL driver's license?
Every time I've ever had my ID checked (usually when flying), the person doing the checking has had a UV light to check the UV indicator on our Kentucky licenses. Otherwise, they've been checking for the holographic foil embedded in the license. Neither of which would be present if you just printed out whatever this app generated and pasted it over a real license. In other words- anyone who is going to be fooled by this really should not be in a position to be checking IDs in the first place...
Sure, it seems like a slam dunk that Apple would cave on this, but it also seems like they could have just said, "If you seriously think there's that big of a security risk posed by this app, you need to be worrying more about those responsible for that security than about this app..."
It's not that they'd be printing and pasting. It's that they would be printing it out on quality paper with a high end inkjet or color laser and getting it laminated. So a college student in New York could print out a drivers license from Montana and go to the local corner store for some beer. Most likely the clerk behind the counter at two in the morning has no idea what a Montana license is supposed to look like and whether or not Montana licenses are laminated. Sure there are books out that show what every license is supposed to look like, for bartenders and convenience stores, but how many of those books are out of date and how many are actually used?