I assume he meant that core TeX (the part written ages ago by Knuth) is in effect bug-free. However you do have a good point that one effect of core TeX being ancient and not really updated is that, in practice, what people actually use is TeX plus giant macro packages whose size is bigger than TeX itself, and those are certainly not bug-free. It's at least plausible that a rewrite wouldn't lead to more bugs total, if the rewrite made it easier to write less-buggy macro packages that interacted more nicely (the TeX macro/module situation is not great for that).