Their argument basically went like this: Your app is clearly a web clipping. It's just your web site wrapped up as an app. We can see your web site, it works fine, and this app adds no additional value to the web site. You need to add features to your app--iOS-specific features--to make it worthy of being in the App Store.
I think it's fair to say that you can interpret rule 4.2 (and especially 4.2.2, which doesn't define a "web clipping" in the guidelines) in a few different ways, and that the "strict" App Store reviewers I faced were being perfectly reasonable in their interpretation of rule 4.2.
(To be clear, I think rule 4.2 is not a good rule, but I think the individual reviewers I spoke with were making a reasonable attempt to interpret rule 4.2.)
The "strict" interpretation is reasonable, but your interpretation (which I would call a "lax" interpretation) is also reasonable. You could say "well, if the web site is app-like--if the app has good, useful features--then it has more than minimal functionality and is worthy of being in the store." Both interpretations make sense.
The problem occurs when you stake your deployment strategy on the hope that you don't get a hardline App Store reviewer, and now, all of a sudden, you can't push bug fixes or compatibility updates to your iOS app, and your users are pissed.
Still an incredibly dumb rule.
From an outside perspective it seems a fairly hard rule to enforce though. If you packaged gmails web interface up in to an app Id say that has a lot more utility than a flashlight app.