It appears he had 2 way communication and wasn't told to stay OCTA, so technically had clearance to enter Class D (but the controller may not have expected that).
He would have had to have been in contact with the Class D controller i.e. Coffs Tower for that statement to be correct. Had he descended to 1000' coastal and contacted the Tower for a clearance to transit the Class D control zone it is highly likely that would have been given. don't forget that the controller he was in contact with was a trainee.
What the controller expected and what the pilot understood seem to have been different.
I think that is absolutely what happened but we will never know what the pilot understood. I'm not sure that having the full transcript would clarify it either as it can't inform the reader as to nuance and tone of the communication.
Misunderstandings between pilots and ATC are one of the more useful areas to investigate, because there are often things that can be changed.
As a PIC you are responsible for clearing up any misunderstanding that you may have with an ATC instruction especially if you think it is going to lead to a dangerous situation. It is beyond comprehension as to why the pilot thought that ATC were telling him to descend to 1000' over high terrain. All he had to do was ask for clarification of the instruction. The report stated
A review of recorded air traffic control surveillance data showed that after the pilot reported that the flight was operating in clear conditions, the aircraft was climbed to about 4,500 ft in Class G uncontrolled airspace and continued on a direct track until 0732. At that time, the aircraft commenced a descent, which continued until the last recorded position about 1 minute later.
Possibly he did have doubts which is why he climbed back up to 4,500'. That was the time to speak up but he then started a descent. I stated in a previous post that ATC will kill you but only if you let them. Despite what some of them think they are not in the cockpit and do not have the authority to make you do anything that you consider will affect the safety of your aircraft and passengers. The main reason these reports are published is to hopefully educate other pilots on how to avoid a similar situation. I would be interested in peoples response as to how this accident might change the way they operate. I would hope that the big lesson learnt is to always be in control of your situation when operating as a PIC.