Yep, mainly a load of bull. Yes, the Hypervisor can allocate memory between the VMs, but as far as I know, it does not dynamically reallocate the VM sizes.
I'd assume that many years into the life of the Xbox One, if a marquee multi-plat title said "we need 7GB or we can't ship on your platform", it would be possible for the Hypervisor to suspend and write out the entire Apps VM to disk, or to shoot a bunch of running apps and shrink the Apps VM on the fly.
Hyper-V on Windows Server can already dynamically adjust the memory consumption of the guest OS partitions up and down, so this is not a stretch if the Xbox One is based on the same code.
Yes that would sacrifice instant switching of apps (they'd have to be tombstoned which takes longer), but if the choice is not getting Call of Duty XII or getting Call of Duty XII, Microsoft will probably decide they want the title on their platform.