I believe Alan Kay is saying that while people know Guitar Hero isn't real guitar, they don't know that using an iPhone isn't "what computing is about". Here's the full quote from him:

  If people could understand what computing was about, the iPhone would not be a bad thing. But because people don’t understand what computing is about, they think they have it in the iPhone, and that illusion is as bad as the illusion that Guitar Hero is the same as a real guitar. That’s the simple long and the short of it.

  What’s interesting is, the computational ability of an iPhone is far beyond what we need to do good computing. What you wind up with is something that has enough stuff on it and is connected to enough stuff, so it seems like the entire thing.

https://www.fastcompany.com/40435064/what-alan-kay-thinks-ab...