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To be more precise, I think the biggest problem with this anecdote is the notion that this guy somehow "one-upped" Knuth by coming up with a pragmatic rather than a theroetically optimal solution. Knuth is a mathematician after all, and if someone asks him to write a program they're implicitly asking for a mathematical result, not an unremarkable engineering tool.

So no, taking this anecdote at face value, this guy didn't "one-up" Knuth; they were effectively answering two different questions. There is more to computer science than finding the simplest shell script to solve the 80% case.