Firstly, I want to say that what I'm seeing from Josepha is highly encouraging, and the first real progress toward meaningful change in years.

Having said that, I'm glad to hear that the Theme Team pushed back when Matt said this (which is complete rubbish): "The .org theme directory rules and update mechanism have driven out creative contributions, it’s largely crowded out by upsell motived contributions."

Contrary to Matt's assertion, you have nailed the real issue: you simply can't separate the financial motives behind most/all of the developers who are producing the highest-quality Themes, and the Theme directory nor the Theme Team has ever had the infrastructure to accommodate such motives or such developers.

As a result, the shining-star Themes and theme developers got lost in the deluge of bad code, bloatware, and copycat Themes being submitted. (And that doesn't even get into the legitimately bad actors, who could much more easily slip through the cracks.)

Reviewing such Themes manually takes a non-trivial amount of time. (Remember: no real, automated tools for most things. ThemeCheck helped, but it really wasn't sophisticated enough to know if core functionality was incorporated/hooked/filtered and implemented properly, etc.)

Most of the Theme Team wanted either to help new developers improve their Theme development skills, or to use the Theme Team to improve their own skills - laudable goals that I hope remain today. Unfortunately, all that time spent buried in the deluge left little time for helping people.

I also disagree with the suggestion that the guidelines somehow stifle innovation. The guidelines enforce following core WordPress coding practices and implementation. Themes should not encourage "innovation" in a way that breaks core functionality, code, and methodology. Innovation should come through implementing core functionality, code, and methodology in innovative ways.

Ultimately, a huge part of the answer to this impasse is improving the underlying Theme submission and automated vetting infrastructure, process, and code checking. (Again: something the Theme Team has been requesting for years.) Allowing direct SVN commits, with a post-commit vetting process (I repeat myself: something the Theme Team has been requesting for years) will remove barriers for experienced Theme developers, and will facilitate and encourage iterative remediation of Theme issues and continuous improvement of submitted Themes.

So, I look forward to see what Josepha, the Meta team, and the Theme Team can implement to make these improvements a reality.