The real problem is the App Store Guidelines make no mention of "no widget/desktop apps". And initially, the application was approved. Then, Apple changed their minds (without updating the guidelines or providing any route to fix the problem) and suddenly this app removed on them.
It would be like if drinking Coca Cola suddenly became illegal to drink, but the laws were not updated to let citizens know. So you're on a hot summer's day, drinking your cool refreshing Coke like you always do, suddenly you're arrested and the cop won't even explain why (but he says he thought your Coke looked especially delicious). It's a little bit outrageous.
Here's a better analogy. You start up a Coke stall on the "sidewalk". You're making money. You buy a couple more and place them in surrounding streets. Now you're making even more money. You buy two more stalls, and then the local council steps up and says "you can't operate anymore stalls. The three you have are fine and you can continue to operate them and make money, but you can't expand any further." Now you feel like shit because you've bought two stalls that are useless, but at least you're still making money on the first three.
I realize it wasn't listed in the rules, but when Apple comes knocking on your door and gives you a reason for the rejection, and blatantly tells you "NO WIDGETS!", it shouldn't be hard to realize that the damn "nice things you can put on your photos" are what have to be removed.
It's more like pg suddenly deleting your comments here, telling you, "No obsequious comments", leaving you wondering just what how that applies to your comments.
For all you know, the whole app is a "widget." The term "widget" is semantically empty without a relevant context from which to derive a definition. It really just means "thing." The closest thing to a relevant definition on the iPhone is "user interface element," but clearly those are not banned from the platform.
It would be like if drinking Coca Cola suddenly became illegal to drink, but the laws were not updated to let citizens know. So you're on a hot summer's day, drinking your cool refreshing Coke like you always do, suddenly you're arrested and the cop won't even explain why (but he says he thought your Coke looked especially delicious). It's a little bit outrageous.