How does that work? Don't these downloads just use the same data that's currently on the discs anyway? (Same textures, assets etc.)

It should be the same assets, yes. Hard drive streaming is faster than disc streaming; Ground Texture A will be on the disc, but having the same file on the hard drive means it can be accessed more quickly.

Lmao, you better get used to it. It won't remain optional for long. Living in the "plug and play era" will be the same as living in the "tapes and cassettes era" in a matter of years. It's quickly becoming obsolete, and Nintendo has been making clear and agressive pushes towards digital, which I'm sure will become abundantly more clear once the new rewards program fully launches.

I know that, but his point was that they couldn't fit the data on the disc. I'm trying to figure out why they couldn't just have an installation app to install/copy the assets onto the HDD rather than downloading them from the internet. Just seems a bit weird, or am I missing something?

Not like I'll buy anymore digital games on a console that doesn't link them to my account so.....I got the space for this.

Since the game is fully playable without the install, it shouldn't be anything that's not on the disc.