When he generated the estimated readership figures, he multiplied the measured readership by the ratio of his sample size to the estimated total size of the Usenet. He then multiplied this number by the propagation of the group to get his final number. This last was his error.
The readership is implicitly corrected for propagation by the very nature of the sampling technique. By explicity correcting for it, he in fact throws the readership figures off by large factors.
As he has not publically commented on it, and has not answered any e-mail on the subject, I can't really speculate beyond that.
The other major source of error in the statistics is that the sites sampled are not likely to be truely statistically representative of the readership of the net. This is a consequence of many factors and is an insoluble problem due to the self-selecting nature of sites participating in Brian Reid's arbitron.