It's not the same as using something like DTrace on a live system, but he's describing it as though eliminating the flexibility implies some sort of event horizon.

This also bothered me...

    virtualizing at the hardware layer carries with it an inexorable performance tax

Hardware has been adding a lot of virtualization support over the last decade, and it's generally been a net performance gain as far as I'm aware. I could see things like IO scheduling potentially being an issue. Although, IO performance on top of operating systems in general does not particularly inspire confidence.