That is exactly what the author complains about, you cannot distribute an iBook outside the store:
"if your Work is provided for a fee (including as part of any subscription-based product or service), you may only distribute the Work through Apple and such distribution is subject to the following limitations and conditions"
The reason to say this was to make the point that unlike apps where you don't have the ability to distribute them outside of the store, the EULA is in this case necessary to lock down the user experience to iPad and resulting profits of providing this to Apple.
Problem with that approach is that receivers of the iBook can distribute copies at will.
I suspect the answer is this: you're free to sell the e-book version for a fee and give away the iBooks version: this just makes the iPad a more attractive product and undercuts your own e-book sales. This is probably a stupid move on your part, but that's hardly Apple's problem.
But giving away the iBooks version _only to purchasers of the e-book version_ is equivalent to the iBooks version being a "feature" of the (non-free) e-book version, which is quite different than "giving away the iBooks version". This would also apply to giving away the iBooks version, but only to members of my fee-based "book club", subscribers to my fee-based newsletter, and so on. Otherwise, what stops textbook publishers from selling non-iBooks "teachers' editions" for $10,000, then giving away copies of the iBooks versions to students enrolled in courses taught by holders of teachers' editions, then passing the $10,000 cost on to students by way of "enrollment fees" or tuition hikes, offset by the fact that "textbooks are now free"?
If you want money, you gotta use us.