Interesting insight but I think you're both "right". If I'm reading you correctly and understanding Dave correctly, the game was made for running in 16-bit mode on Windows. According to Dave, Microsoft did not want to ship any applications with their "flagship" 32-bit OS that were not able to run natively in 32-bit.

This, according to Dave, is also the reason you don't see Pinball shipped on the newer "64-bit" versions of Windows, despite the 32-bit version running just fine on 64-bit Windows.