No, no, it's not quite as drastic as that.
First up, the CDs that Wing Commander III shipped on were not standard 74 minute (680 MB) discs. If I recall correctly, they were actually 60 minute discs (about 550 MB). This is actually why the holovids were removed from the PC version, and retained in the 3DO version (which did use normal 74 minute CDs).
Secondly, your maths presume that the videos would take as much space as they did on the CD. They wouldn't, because the document specifically talks about reducing their resolution. If we assume that the resolution is cut by half (to a horrifying 160x100!), the video files would take just a quarter of what they took in the CD version.
Thirdly, WC3 was designed to allow a minimum-size installation, where most of the game data was streamed off the CD. What this means is that a significant part of each of the four game CDs was taken by gameplay files - music, ships, et cetera. IIRC, you didn't have more than 400 MB of video per disc - so, theoretically, you could wind up with about 100 MB of video. Multiply this by four, add the gameplay files, and you wind up with a grand total of about 550 MB, or 382 1.44 MB floppy disks.
But wait, there's more! The data on the CD was mostly uncompressed - some compression of the video was used, of course, but generally, everything was kept as uncompressed as possible, so that the game would not waste time decompressing data when reading off the excruciatingly slow 1x CD-ROM drives. Naturally, when a game is released on floopies, everything is compressed as much as possible to minimise the number of disks. And Origin was the absolute expert in minimising install package sizes - they had to be, because games like Strike Commander were pretty darn big.
All in all, I think they could have ended up reducing the game's overall size to about 200 floppies. Maybe even less. Still utterly impossible for profitable publishing ("well, I can pay $250 for this game... or I can buy a $200 CD-ROM and pay $50 for the game... hmm..."), but at least it's a package size that's within the realm of the imaginable - with 17 grams per floppy, we're only talking about a 3.5 kg total box weight

.
However, there remains one tiny, irksome issue to all this -
who on Earth would have had a hard drive big enough to install a 550 MB game
in 1994?!