I agree that Apple should have never approved the app in the first place. Once they let it through, there was no good solution.
1. Allow all widget launchers, which they don't want and are explicitly against the TOS.
2. Allow only this widget app to stay, giving it an unfair monopoly. Cue kingmaker article.
3. Allow this version of the widget app to stay, reject all updates. Like #2, but worse in every way.
4. Pull the app off the store; allow it to continue to function for people to have it.
5. Push the big red button to pull the app off the store and every phone.
Any time a flagrant TOS violation sneaks through, whether by App Review oversight or by subterfuge, this happens. Apple always chooses #4.