As far as I know it is a compressed image of the whole disc. But as I understand this article, a small part of the firmware is stored on internal flash storage. Probably, it's just the loader with some kind of emergency operating system.
Yes, I totally agree. The main idea behind all efforts should be to find exactly this solution. That would give us the possibility to develop custom firmwares and homebrew applications. I'm quite sure that the real geeks dealing with this decryption stuff don't want to build some kind of iso-loader or find a way to copy paid .pkgs.