How do you reconcile this with the reality of systems breaking?

To make it work then you just can't rule out by fiat a hard-disk breakage as one of the simplest adversarial conditions to the model.

Presumably by replicating extensively? How this was supposed to work in 1960 tech (and storage prices), I have no idea.

Xanadu is full of missing pieces like this one. There is a reason it never took off.