I used to use Palm OS stuff. The handwriting recognition was awesome. The stylus worked great.
When Steve spouted that stuff about using your fingers, I had thoughts similar to yours.
But what flummoxes me is when similar statements are made today by the current execs, people still eat it up instead of thinking about it and responding using critical reasoning.
He was talking about using a phone not tablet and he was right. A stylus on a phone makes no sense (remember this was before phablets) but it does on iPad.