Yes. If the FBI had a signed system image that disabled disk encryption, they would have applied it through Recovery mode and the data would not have been lost. They couldn’t get Apple to make or sign the software, however.
Not the point, If installing such a software on a locked device is technically feasible that's a pretty glaring hole in the entire security approach, essentially making Apple a trusted party to your phone data with the ability to create other such parties.
You already trust them not to make compromised software updates anyway. While I agree that this is definitely a potential issue, I don’t think it changes the threat model.
