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In Europe (or at least in the Nordic / Scandinavian countries) a Sauna is not just a place to relax in but it's a place where you get to get clean. Historically Saunas where used before the invention of the shower or the bath tub. And I don't think that you shower or batch with your swimwear on in order to get clean in Australia?
Compiled with millions of drivers, filesystems and other functionality that this LiteOS kernel probably doesn't need yes but remove all that and it shrinks vastly in size. If LiteOS only have to support a single piece of hardware then they can remove lots and lots of stuff.
It's only > 2mb if you include tons of drivers and functionality that they probably stripped. Since it's a IoT for their own hardware they probably only have support for the very tiny subset of hardware that they have and drivers are a big part of the kernel.
I don't get it either but it's not "stupid" per say since it will get you (if you use the standard 2048-bits size) a password with a length of 372 that is infeasible to crack. It doesn't solve the key storage problem though since he apparantly stores his public key only and one cannot extract the private key from the public which is what makes it kind of stupid.
Why is it ok if it's a company issued phone? Just because it's a company issued phone does not mean that they have the right to do whatever the want with it.