It could be, but I've heard this same story told about a Sony exec. instead of Steve, and that was before iPod's time. It was a camera that he dropped into a body of water though. The rest is same.
Doing as exhaustive of a search as I could, I found a couple of interesting things. The Sony version of the parable seems to center on the Walkman (as opposed to a camera), which was built in the late 1970s, and either Akio Morita or Masaru Ibuka (co-founders of Sony). However, the earliest reference on the Internet to it I can find is from September 2002 [^1], about a year after the iPod was released, making its origins inconclusive. The fact that it is linked to multiple founders of powerful technology companies suggests to me that it is apocryphal.
Well, the story might well be completely made up, but the chances are higher that it was made up about Sony not Apple. Probably around the time of when the first Walkman was released.
Let's not forget that early Apple was modelled after Sony of the time. Also, under the context of Japanese culture the kind of attitude displayed by the 'boss' in the story is less striking or unusual.
Funny that both devices cannot really be made without air in them.
That first iPod had a hard disk. Hard disks have disk heads that float on air.
Typical lenses aren't flat at the back; CCDs or films are. You could fill that void with glass with a different index of refraction, but that would only make the thing heavier, not smaller.
Hard disks are not sealed. Disks from the 1960s were. Then engineers realized they could dramatically reduce the amount of structural bracing if they left a "breathing hole" open and allow air pressure to equalize. This is why all hard drives have that little 2mm dot labeled "Warning do not cover!".
Even more amusingly, hard drives need that air inside to operate and they won't work at high altitudes.
[^1]: http://forums.dpreview.com/forums/read.asp?forum=1000&me...