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).
Nobody uses (Knuth's) TeX anymore. They use PDFTeX, XeTeX and LuaTeX. None of these are as stable as TeX, but in practice a whole lot better than most other software I use.
All of these versions of TeX are just extensions of the original TeX. The core Knuth's code is still used in each one of them. The stability comes from the core, not just from the work of pdftex, xetex and luatex developers.
The stability comes from the core, but the problems arise from the extensions. I have pushed LuaTeX to some limits and seen lots of segfaults and other errors.
