> When did it become illegal to [...]
That's a question for regulators and lawyers. But in general yes: trying to evade a law instead of complying with its intended application is generally not viewed as unquestionably legal. In criminal law it's sometimes even taken as evidence of guilt!
> If they wanted, they could remove the App Store from iOS in EU, or pull the iPhone from the EU market entirely. Apple isn’t required by the DMA to part of a digital market at all.
And if the EU wanted, they could ban Apple products entirely. The point is that no one does stuff like this because there's a general sense that healthy competetive markets are good for everyone, and that the capitalist market will enforce this by punishing actors that try to cheat (in this case, by "trying to make more money by making your product worse").
But sometimes that market enforcement breaks down, in the face of trust/monopoly activities like (in this case) control over a computing platform. And when that happens it's routine for regulators to step in to try to right the ship.
And that ship is listing pretty badly right now. Apple is dancing as close to the edge of predatory monopolism as is possible. Again, they literally think they'll make more money by deliberately breaking their own customer's web apps. There's no way at all that's a healthy market. QED.