Was it maybe This site
Here is someone's explanation from the same web site:
1) There were never any high level source code files for the origional Macintosh OS. The origional Mac ROM code (this is the code most people call the MacOS) was created by taking the Pascal compiler 'assembly language' output for portions of the Lisa OS (which _was_ writen in Pascal), optimizing the assembly code, and assembling and linking it to make the ROM 68000 machine code file. From there on, all new code for the ROMs was written in assembly language. This became an issue when Apple changed to a new processor and needed to get the 68000 assembly language code to run on a PowerPC processor. For a number of technical reasons this forced Apple to rewrite the entire 'OS' in C - which they did over a period of years (most of the 68000 code ran via a ROM based 68000 'interpreter' on the PPC machines for a long time). The high level source code had not been lost, it had never existed. Could this be the source of the "lost source code" rumors?
2) In the MacOS 7.x timeframe, several Mac OS engineers had hard copy printouts of the assembly language sources in their offices. So these sources could not easily be lost, there were numerous copies.
The rest of the MacOS (the Finder and the resources that made up the system file) were recompiled from sources every time a new system was released. There were several copies of many revisions in Apple's Software Configuration Management (SCM) department media safes. All of that has probably turned to dust by now if it was stored on magnetic media, but that matters little.
On the subject of bugs in the MacOS Libraries. The problem you describe is probably not a MacApp issue. It is probably a MacOS interface file issue. The interface files (also called libraries) changed all the time, and were released to the 'public' (the Macintosh developer community) most every time a new version the MacOS was released. When a feature was added to the OS, the developers needed access to the new APIs, they got the new APIs by getting the new MacOS MPW Library files. There were several times when imperfect versions of the library files were released to developers, and many more times when they were released internally. The solution in such a situation was to tell everyone that particular MPW Libraries release should not be used, revert to the previous MPW Libraries, and recompile & link. This was not uncommon, and usually caused a minimal loss of effort. This is where being plugged into the internal network came in handy - a single call to the right person could clear up the issue.