I enjoyed this episode much more than the last two. I think this is largely because in this episode you mostly sounded like two students doing your best to understand a master, while in the last two episodes you sounded more like two teachers discussing the shortcomings of a student. The cute nicknames still come across as disrespectful and detract from the atmosphere.
A few specific thoughts:
"Communications system" means system for communicating between people.
Games are dynamic, because they respond to the person playing them, but they usually aren't personal because they are written by a team of specialists and the player cannot usually encode new ideas into the game. The game communicates ideas from the creator to the player. (Yes, there are exceptions like Minecraft.)
The point of the meta-medium is that any idea that can be encoded and presented in another medium can be encoded and presented in the computer, though not necessarily in a personal or dynamic manner. For example, streaming a Hollywood movie online uses the computer to emulate film, but it is neither personal nor dynamic.
The "real thing" that children get to do with Smalltalk is communicating by expressing their ideas in a responsive form in a personal dynamic medium, and then see other people interact with those ideas.
Children were the target audience because they can still learn. As Seymour Papert said, all adults are learning disabled. When you're trying to come up with a whole new way of communicating, it helps to work with people who are still able to learn new ways to communicate.
At the time people thought MIT and PARC were kind of crazy for letting children "play" with computers. The fact that some children were able to create programs with Smalltalk as well as some adults using more normal systems of the day was an impressive achievement.
The Alto had a maximum of 512K RAM. That's less than a maxed out 8088 PC, so I'm not sure it's fair to criticize the primitive animation techniques. How much capability was realized in such a small computer is a testament to geniuses like Dan Ingalls who made the system so much more expressive per line of code then almost all other systems of the time.
You probably know this, but the team didn't stop in the 1970s. You should watch Squeakers squeakland.org/resources/audioVisual for some insight into later work on pedagogy.
Describing the music editor as "typical" doesn't make sense when you're talking about the first program of its kind.
Adele Goldberg wrote Smalltalk-80 The Interactive Programming Environment, and her views and philosophy appear here and there throughout that book, especially at the end.