I just read that. This guy certainly wasn't Ken Thompson. But this happened to me in 1991, seven years after the date of publication you posted, and the "login" portion did the exact same thing Ken was describing as far as the secret password. This was probably Thompson's genius idea implemented by the grad student. The mechanism was very different though in the compiler, but the outcome was still a poisoned compiler.
I had heard of self-modifying compiler before, too or I probably wouldn't have thought to look there myself. I'm not surprised to see Thompson behind the original idea.
As an ex-PHB rather than a programmer, I think perhaps that Dr Phelps could have had taken a bit more interest in the project &c. Perhaps had a look at the code now and again as simply asked "why does this look so unlike other people's code?". Might have sent a shot across the bows of the bad apple.
The thing that makes me tend to agree with you is that he hasn't mentioned any "finally, years later, I found out where that guy got his idea" moment in it.
"I suddenly realize it's in the compiler. It was the compiler. And every time you compile the original code and run it puts in the subliminal message code into the source code. I'd heard of this before."