Are bay area software engineer wages really that low that this is the biggest deal?

They were significantly lower during the no-poach agreement. After it ended, Google immediately raised all its engineers' salaries by ~15%, and salaries quickly increased from there.

Look at self driving car engineer salaries today. Those wouldn't have happened under a no-poach agreement. Compare to the mobile OS race, with tens of billions of dollars (at least) on the line. The no-poach agreement between Apple and Google prevented them from beating each other with engineers, so the money poured into lawyers' pockets through litigation instead.

It is a drop in entropy encoder replacing Huffman. Just because the patent is covering dropping it into AV1 doesn't make it ok. It just restricts the scope of the absurdity.

The founder of Xiph says this is the norm for codec patents. I am inclined to believe him.