Hey Chris, my point was that perhaps why the Founder "strictly" prohibited competition was that every moment wondering whether one's aikido will work (work, as in, make you victorious in an engagement) is a moment away from where Osensei saw true budo to be. Why would someone agree to a contest with someone, except to see whether one will win or lose? If Osensei really meant aikido is not about winning or losing, then it would stand to reason that winning or losing (competition) is not aikido. At least by the Founder's definition.
Maybe competition using some of the mechanics of aikido is something else...
I mentioned this on another thread, but the match in the film that you mentioned was in fact sanctioned by Morihei Ueshiba himself - which runs into some problems with a "strict prohibition".
We also know that Morihei Ueshiba participated in a number of similar encounters himself, which also runs into a problems with a "strict prohibition".
Language in Japanese is rarely as black and white in meaning as it is in English - things almost always change on a case by case basis, so I think that it would be tricky to read too much into the quote that you cited.