Whenever this free weights vs. machines argument comes up people forget the neurological differences. Doing squats doesn't just require strength but balance as well. The stabilizer muscles are put to work as well and these are not activated in a fixed machine lift. Machine lifting makes you strong for that machine but that is all. Squatting makes you strong throughout the body.
No NFL or D1 college football teams use machines only for their strength training programs. No NHL hockey team or any Olympic athlete in a speed or power sport lifts with machines exclusively or even a majority of their strength training.
Arthur Jones as well as any other machine maker (including Vince Basil) has a financial motive to convince people machines are superior even though there are no examples they can use to prove their theories.
I almost forgot to address this very important post as I feel the topic is often fraught with confusion. Often the debate is about two different topics but first I want to quickly dismiss a couple of points you made.
This idea that machines only make you strong for that machine and "that is all" is not intuitively but empirically false. All a muscle does is contract. The bigger and stronger the muscle is the greater the force of contraction. As your strength increases significantly on a machine it therefore follows that your muscles have gotten stronger. How could it not? If you took someone who did no training at all and then have him embark on a total body weight-lifting program along with adequate nutrition for a year and he progressively increased the amount of resistance on the chosen exercises how could he not become a stronger overall human being? For example, by increasing his resistance by 50% on the leg press would he have more ability to say push a stranded car?
The notion that Jones had a financial motive is irrelevant. Some will do things just to make money and some will do things because they really believe it's a better product and will make life better along with enriching themselves. Financial success is one of the ways a society places value on a product that will improve their lives.
Because I am not a mind reader I am relunctant to access people's motives but just judge their actually behavior. What they actually do. Is it good or bad. Some rich guy may do a lot of charity work because he wants to look benevolent and generous and get a tax write off or he might really care about other people. I can't be sure. What I can be sure of is that he is donating money and making life better for others.
What you can say of Jones and his machines can very well be said of Weider and his free weights. He poo-poohed machines maybe because his business was with free weights. He was a good businessman but he was not even remotely close to Jones' genius and engineering abilities so he was not going to compete with him in equipment development. And though we can't be sure, knowing the history of both men I don't think it would be a stretch to suspect that Weider was far more concerned with the financial and marketing aspect of his business than Jones was.
I'll address the other more important issue you brought up regarding "neurological" differences and this concept of developing "stabilizer" muscles later on.