Per this rule, a player can replay the shot from as nearly as possible from the spot from which the original ball was last played. So how near is near is not specifically defined.
So I would still argue that the drop Woods took was totally within the rule as he interpreted it.
And although not relevant to the argument, I would suspect that this particular violation occurs frequently on the tour but is never realized by the player or the spectators........
a. Proceed under the stroke and distance provision of Rule 27-1 by playing a ball as nearly as possible at the spot from which the original ball was last played (see Rule 20-5); or
I contend that he was using option B and thought he could go back as far as he wanted. Where he effed up was forgetting that the point of entry changed drastically after the ricochet off the flag stick.
b. Drop a ball behind the water hazard, keeping the point at which the original ball last crossed the margin of the water hazard directly between the hole and the spot on which the ball is dropped, with no limit to how far behind the water hazard the ball may be dropped; or