I'm wondering how accurate this article is. I'm an iPhone developer, and the iTunes connect website where you monitor your download statistics has been down since the 24th for a 4 day scheduled outage. It's still down now: http://itunesconnect.apple.com/ . I can't see any possible way they could know how many downloads they've had.
If the app contacts their web servers after it gets installed or in the course of use.
We had the scrolling LED sign in our office rattle off sales in real-time, which was fun for awhile.
As a quick piracy note, you can also detect pirated iPhone apps this way: http://thwart-ipa-cracks.blogspot.com/2008/11/detection.html
Back to iFart--I can't imagine many people would pirate a farting $0.99 app, versus a more expensive, more popular game. Maybe 1% or less?