For example, I don't want (or need) general rules for advancing monsters, or applying a skill system to monsters. I certainly don't want someone to argue that a monster I include isn't built according to such rules. I suspect that's the kind of thing Gary was getting it when he talked about "too rules intensive" and the DM being demoted from "master of the game."
Well I generally like those rules - especially templates, they give world nice flow of organicism - like vampirism is template, and you can add it to some dwarven barbarian and he won't be just random vampire 1 from Monster Manual. But as you are not obliged to show players your notes - I think as long as you're honest and do not tweak monsters you built because suddenly they are too easy or too hard.
I don't find much value in things like templates. I have no problem at all with making a vampiric dwarf barbarian, but I'd just give it the abilities I want it to have without following a template for doing so. That's what I mean by not needing such rules: for me, they're just extra weight for no real benefit.
Exactly, my feeling is who needs a template, just use your brain.
However clearly some do prefer the more rigid template approach.
No doubt I'm oversimplifying but my (fairly limited) experience of the 3.5E style of play is that players do (a significant amount of) their gaming in advance by optimising character build. The goal of this is to achieve success within the framework of the game's mechanics. In that case, you want monster builds to be tightly defined because that is "fair". If the DM just makes something up, that's like moving the goalposts.
The OSR style of play is that players do their gaming at the table, reacting to the DM's description of the world and submitting to on-the-hoof but (hopefully) broadly fair and reasonable adjudication where the course of events isn't obvious from common sense.
Not saying you can't play OSR style using 3.5 rules or vice versa, of course, although I wonder why you would want to.
My read of the Gygax quotation is that he was criticising a drift towards the style of play I'm characterising above as 3.5. Which I file under "different strokes for different folks".