Of course, you couldn't be bothered for sparing a thought before your intial post in such a haughty manner, especially with how quickly you state than on checking ANO the commander's understanding was entirely correct! (are you now attempting to score another percieved point with your little chip above? Care to reveal which ATSU you're referring to?)
The simple answer is that in Class D as you rightly mention as per ANO, traffic is passed to VFR on IFR aircraft accordingly. However, ATC instructions may be issued to VFR aircraft (and subsequently, if the pilot unable to maintain VFR ATC should be advised). Quite simple really.
AlanM sums it up perfectly:
This is a typical case of someone knowing a law but not it's application.