[tex-k] do not understand

[Karl Berry]

Hi again Wolfgang,

    Did I miss something? Is this one of the little white lies? Or is this 
    an error in the TeXbook?

I would not call it either a lie or an error. It seems to me that the
explanation is in the sentence in the paragraph after the exercise:

  a sequence ... will vanish as a unit ...
  unless the optimum breakpoint sequence includes one or more of the
  penalties.

The "optimum breakpoint sequence" is being forced to include both (all)
-10000 penalties, therefore they are not discarded.

Another hint is in the answer to the exercise:
  ... unless both of those values force breaks.

So there are clues that -10000 penalties are special wrt discarding.

I can imagine other ways to word this that might be clearer, but I can't
justify adding another report to the pile for this. --best, karl.