From the point of view of physics, it contains garbage,
But a miracle occurs, and your physics simulation still works accurately for the individual components...?
I get that your assumption of "linear physics" gives you this. But I don't see any reason to believe that physics is "linear" in this very weird sense. In general, when you do calculations with garbage, you get garbage. If I time-evolve a simulation of (my house plus a bomb) for an hour, then remove all the bomb components at the end, I definitely do not get the same result as running a simulation with no bomb.
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I've written an essay criticizing the claim that computational complexity means a Singularity is impossible because of bad asymptotics: http://www.gwern.net/Complexity%20vs%20AI
One screwup that you didn't touch on was the 70%. 70% is the square root of 1/2, not 2. If it's 2x as smart as its designers and the complexity class of smartness is square, then this new AI will be able to make one 40% smarter than it is, not 30% less smart. Imagine if the AI had been 9 times smarter than its designers... would its next generation have been 1/3 as smart as it started? It's completely upside-down.
Two 'Crawlviati' attributions are inside the quotes.
You didn't really call out certain objections as stronger than others. I would be surprised if giving up determinism was half as useful as giving up optimality. And changing the problem is huge. I think that, though this would not impact the actual strength of the argument, calling certain items out after the list before the next section would give it a rhetorical kick.