There's no contradiction: If you have the plaintext input, you are required to have at least a (non garbled) function describing your operation, so it doesn't imply obfuscation.
Anything that can be written as a function can exploit FHE, as long as the output doesn't grow (i.e. you have to account for growth before)
Input = FHE(data|opcode1|opcode2|...|opcodeN)
The server won't know what are the (opcode1|...|opcodeN) if the FHE scheme is properly implemented. That is, the actual implementation would be something like
Input' = FHE(data|opcode1|opcode2|...|opcodeN|randomness)
Output' = InverseHE(FHEval(Input'))
Output = Output' - randomness
I.e. the server can't uncover the (data,opcode1,...,opcodeN) tuple by enumeration if exp(randomness) is large enough. Is this what you had in mind?
It still has to execute the opcodes, revealing the computation in that sense. All the randomness adds (if I understand your example) is additional "junk" computation, that's unrelated to the output you really want -- but that's no different than you can already get with "plain" FHE, with obfuscation, or with adding pointless operations to a regular program.
Additionally, you should keep in mind that when doing the weird virtual machine thing you are not dealing with a single program. There are in fact 4. The actual program, call this P, you want to run on your data, the program to encrypt your program P along with its data, call this E, the virtual machine to run this encrypted program on the server, call this V, and finally the program to decrypt the result from running V on the output of E, call this E'.
Clearly, if we compose all these programs and run it on some data D, we get E'(V(E(P, D))) = P(D). However, the server doesn't know E, D and P and certainly doesn't know E'. The only thing the server knows is the value of E(P, D) and what V is. I haven't looked at the paper to deeply but I suspect it's vitally important to their result that you have some type of oracle that given a D, tells you the output of P(D), but the server cannot have that or else it would be pointless wasting your time with this FHE thing.