I think he intends “privilege” to refer only to filesystem and other OS-level privileges, not more generally to the capabilities of code, and I think he uses “untrusted” to mean minimally-trusted—more restricted than the OS can enforce.

Taking the DNS Helper example, one could imagine a function-like DNS Helper which has the capability only to return a value. This would make libresolv just a bug, not a security hole, because the attacker would only pervert their own request.