samthenylic,
I don’t think it occurred to the Lubavitcher Rebbe that people would specifically seek to interpret his words in a bad way.
midwesterner,
To a degree it does apply to the all of Klal Yisroel. The Rebbe in his speech based the idea on the kabbalistic concept that Yisroel v’Oraisa v’Kidsha Barich Hu, chad hu. On some level all of Klal Yisroel has a unity with Hashem.
My understanding of the Rebbe’s idea (I am not a Chabadsker so take this with a grain of salt) is that there are layers of gashmius built up upon everything physical that masks the Hashem-stuff underlying it. Our aveiros and taivos create barrier between us and Hashem. A great tzaddik and talmud chacham, however, has a much smaller barrier and greater connection to Hashem. His physical is less physical than an ordinary person–and therefore more like Hashem. Thus, instead of a being a chatziza between a Jew and Hashem he is a bridge.
Mashul l’ma hadavar domeh. If a person is going to the mikvah and they have mud on them, the mud is a chatziza between them and the water of the mikvah. But if the person is wet from a shower and they go into the mikvah, the outside water is not chotzetz. On the contrary it connects to the mikvah better.