He's really just addressing the elephant in the room by saying that as of yet the whole open source desktop mess has failed to produce anything that looks like a compelling , easy to use desktop.If Google can produce a Linux based operating system that addresses the needs of casual users... [they can] simply eat everyone elses lunch.
He also addresses the elephant in the room that the major Linux UI pushes that consciously and grandly targeted those goals were grand steps backwards. That the things the UI prognosticators think users want, like abstraction and simplification, alienated real Linux users like Linus. That normal users missed features the UI cognoscenti banished as "too confusing," such as "easy mouse configurability for things like how to launch applications."
When you talk about abstraction, metaphors, making the filesystem invisible to users, and (most telling of all) appealing to "casual users" it sounds like more of the same talk that we've had for many years now. The more grand and self-conscious the community gets about user interfaces, and the more they target non-techie users, the less useful the desktop environments become for their actual users. That missing configurability that Linus laments, which was sacrificed for the sake of "casual" users -- did we really attract a bunch of casual users? Did we eat anyone's lunch, take market share from OSX or Windows? Or did we just make our desktop environments less usable for the people who actually use them?
Linus says GNOME was "useless" without that configurability, and that this new device might be usable as a laptop if it had a terminal and a development environment. That doesn't sound like a call for Linux environments to appeal to "casual" users. I don't think Linus is asking for even more simplifications to get in the way of his usage, like abstracting away the filesystem.
The elephant in the room is that Linux desktop environments did a better job of giving Linux users what they wanted when that's all they tried to do. Trying to give us what we didn't know we wanted has been a failure. Targeting non-techie users has gained us nothing that we didn't already want for ourselves. It's time for the community to get off its high horse about UIs and go back to what it's good at, which is humbly (and very successfully) catering to its own needs. And nobody should feel ashamed of creating or using an operating system that never eats Apple's or Microsoft's lunch (isn't that such a ten years ago obsession?)
(P.S. You know what's good at abstracting away the filesystem when and how it's appropriate? Applications.)