The OS can stop an app from using certain APIs. This has nothing to do with the walled garden. ios tells you when an app is using your location in the background, it can do this for side loaded apps as well. It then allows you to disable it for that app, which it an also do for side loaded apps.
Currently, App Store doesn't just review safety and UX, it also reviews whether or not Apple simply likes your idea or if you are competing with a feature they've integrated into the OS.
If the App Store remains the only method for installing apps, and Apple continues to reject apps that they simply don't like, then it's not a healthy platform for consumers in the end.
This isn't a value judgement, but if enough users sideload or use the open market governments will probably have to step in to advocate permissions checking because Apple won't have the influence to regulate developer behavior on their platform(s).
You can sort of see this on other platforms - the Mac App Store has very few quality apps listed on the store and Apple is further moving towards locking down root permissions b/c users can download apps or install software from anywhere on the web. It's typical for users to install anti-malware software on new Android devices, etc.
