@Daniel in SD, you just need to agree that
@Knightshade is correct about this and move on.
All Tesla needs to say is that FSD requires full driver attention at all times and that the driver is in control at all times. Then they have a level 2 system, which they call (marketing term) "FSD" (it's not "real" FSD, to be clear!). It'll be a system that requires hands on the wheel at all times and full attention as the people who bought it progress towards every traffic light, wondering if the car will stop. (And sometimes it won't.) Also Tesla will say it's in beta, and put all the same verbiage and disclaimers that they currently include in the Owner's Manual.
That's a level 2 system and requires no permits. It's not any different than the system they have today, at all. It's exactly the same as EAP, it just will have a few more features (reading signs, attempting to stop at traffic lights, navigating streets without yellow centerline markings, stop for pedestrians, etc. ). Should be exciting. Will be that way for several years I would think. But, the people who bought it will be sort of happy since they have features that others do not, even if they do not have what was promised (fortunately, most of the people who bought it don't expect much as far as I can tell - they just want a toy).
Getting back to the topic, I think unless there are specific regulations about level 2 in some states, as soon as the software provides a meaningful advantage they can roll the hardware out as Elon says. So it does seem like there might be a bit of a backlog as far as installs go. Not sure how many vehicles we're talking about here. Perhaps Tesla will be able to claim some geofencing is required initially even for the level 2 FSD additional features, but that seems a bit doubtful.
It's possible that additional regulations will be generated in response to incidents that you mention where people other than the driver of the Tesla are killed or injured. So that could introduce natural slowing of the rollout.
I'm not saying any of this is a good idea but I don't see how FSD isn't level 2 through and through. It has no elements of a level 3+ system at all.