Hi Rok - those are some good questions. As far as the LSO situation, that is always a complicated issue. First of all, if he even asked to be moved down to third, that probably means that there was already a third trumpet opening, or there was about to be. Otherwise, there would already be someone playing that job, and it wouldn't be available to him. That would be my guess. And yes, if he moved down, then they would be auditioning for a new principal.
There is probably no implication in your article you mentioned that "there is no rhyme or reason" for the cuts - there would have to be some rhyme and reason for it, as is not simply a matter of cutting out part of it, the result has to make musical sense. There could be any number of reasons for making cuts - length being one (for fitting it onto the recording); the artist feels that part of the piece is not as good as the rest, and so cuts it out; the artist cuts out a part that is particularly difficult for them (though this would not be the case with Michael Rabin, who was world class), or other reasons. Sometimes composers give options, too, I believe those Paganini caprices have optional sections in them. Other times there are different versions of the same work by the composer, for instance there are at least three different revisions of Stravinsky's ballet, the Firebird. Often conductors will put together a suite consisting of parts of each version. This happens often with Bruckner symphonies.
As far as differences between the principal and other members of their sections, this of course will vary greatly from orchestra to orchestra, because of several reasons - age, experience, actual ability, etc. There are many factors - for example, in the horn section, different positions require different skills. For instance, the first and third horn players are "high horn" players, and the second and fourth horn are "low horn" players (think of the horn section as two pairs, first and second are a high/low pair, third and fourth are a high/low pair - in the days before valves were invented, these two pairs would have been in different keys, to give the composer more note options). The fourth horn player in particular is not expected to have as good of a high register as the first and third horns, but is definitely required to have a very good low register, much better than the high players. The differences are not quite as great in the trumpet section, though they also exist there as well. The principals are paid more, as they are the leaders and do play most of the solos. But as far as actually being better, while they are much of the time, this is not always true. When I first joined my orchestra twenty years ago, it just so happened that several of the second players in the woodwind and brass sections were actually better overall players than their principals, though this is not the case any more, with turnover over the last two decades.
In any orchestra, there is a probationary period of one or two years. Anyone winning an audition that turns out not to be up to the required level is let go after this period. If they are up to the level, then they are tenured. So the main point I would actually like to emphasize in answering this question is that anyone in a major orchestra, no matter what part they are playing, is a damn good player. It is the most competitive field to get into there is, barring professional athletics and perhaps singing and acting. And in every major city, there are many free-lance musicians who are just as good as the people who actually have positions in the major orchestra in town. Knowing he will not toot his own horn, so to speak, I will go ahead and mention that the Frogman most definitely is one of these in New York, as evidenced by the fact that he gets hired to play substitute/extra with the top groups on a regular basis. He is also unique in that he has a lot of work in the jazz scene there as well - that is relatively rare nowadays.