> I don't think this will allow solving the halting problem, its been mathematically proved to be impossible to solve [1].
Yes, this is my point: the proposed super-optimiser would, it seems to me, en passant be solving the halting problem, which means that it can't actually exist (or, at least, can't actually satisfy the stated guarantee).
> Nothing prevents a turing complete program from entering an infinite loop. A GUI program for example is terminated only when the user decides to, which is impossible to predict.
On the level of the lambda-calculus, this is reflected in the corresponding term's having no normal form, in which case the algorithm described (which relies on reducing everything to a normal form) cannot do anything with it.