Most of the power gamers/munchkins I've met and played with would be happy to scale back Just so long as they're better than anything else on the field (including anything the DM puts out there), that's usually enough.
Note that I said "most", not "all". I'm sure there are munchkins out there who simply want to explore the system, to see how far it can take them, and that it isn't a competition to show everyone who's the "better man".
Admitted, I've never met this theoretical person, but it's a big world. Statistically, out of the six billion or so people in the world, such an individual might exist.
Okay, all seriousness aside, this player doesn't seem to understand the concept of "scale back". Like I said, he gloats when he pulls out some odd trick that says he's immune to X. One of the reasons he's loved as much as he is.
If, however, this particular PC does happen to croak, we will probably be a lot stricter in our enforcement of allowable sources. That might cramp his style a bit.
The DM was making a basic mistake though, in dealing with this one. You can't prove to a munchkin that munchkining is wrong by out-powering him All you'll do is convince hem that his munchkin PC needed to be even more munchkined, to prevent him being out-powered again. It's the arms-race mentality itself that is the problem.