If I understand correctly, the inheritability of a trait often increases with a decrease of environmental variability.

Yes. (More relevantly, I'd say that as the environment gets better, the heritability will increase.)

Overall, your points about the Ethiopian cows are correct but I don't think they would account for more than a relatively small chunk of the difference between the best American milk cows and regular Ethiopian milk cows. It really does look to me like humanity has pushed milk capacity dozens of standard deviations past where it would have been even centuries ago.

They found that a non-linear model predicts the data better than a linear model, which is however quite good, and again I don't find this particularly surprising since linear approximations often perform well on sufficiently smooth functions, especially in the neighbourhood of a stationary point (where you can expect the genotypes of a relatively stable population to be, approximately).

Not surprising no, but people have seriously argued to me that things like embryo selection will not work well or at all because it's possible important stuff will be due to nonlinear genetic interactions (most recently on Google+, but I've seen it elsewhere). So it's something that apparently needs to be established.

My problem with Hsu line of argument is that he extrapolates predictions of these kinds of linear models way past observed phenotypes, which is something that has no theoretical basis, especially given that non-linear effects

I'm not sure how seriously Hsu takes the 30SD part as translating to underlying intelligence; the issue of SDs/normal ordinal distribution of intelligence in the population vs a hypothetical underlying cardinal scale of intelligence (http://lesswrong.com/lw/kcs/what_resources_have_increasing_marginal_utility/b0qb) is not really easy to come down to a hard conclusion except to note that in some areas AI progress curves spend a while in the human range but often go steadily beyond (eg computer chess), which suggests to me that large difference in human intelligence rankings do translate to fairly meaningful (albeit not huge) absolute intelligence differences, in which case the 30SDs might translate to a lot of real intelligence and not some trivial-but-statistically-measurable improvements in how fast they can do crosswords or something.

I think probably the best response here is to take it as saying that the lower limit will be extremely high and equivalent to the top observed phenotype, like a von Neumann. Since right now estimates of IVF sperm donor usage in the USA suggest something like 30-60k kids a year are born that way*, if the fertility doctors dropped in an iterated embryo selection procedure before implantation. I think 30-60k geniuses would make a major difference to society**, and if they happened to be even smarter than the previous top observed phenotypes...?

* I use this figure because looking into the matter, I don't think many women who could bear kids normally would willing sign up for IVF just to get the benefits of embryo selection. It's much too painful, inconvenient, and signals the wrong values. But women who have to do IVF if they ever want to have a kid would be much more likely to make use of it.

** to put 30-60k in perspective, the USA has around 4m babies a year, so ignoring demographics, the top 1% (roughly MENSA level, below-average for LW, well below average for cutting-edge research) of babies represents 40k. If all the IVFers used embryo selection and it boosted the IVF babies to an average of just 130, well below genius, it'd practically single-handedly double the 1%ers.