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psychofan is not referring to withdrawing the money, just to liquidating the position in the account. It would still be a rollover, it would just come over as cash instead of as shares in kind.
Also, people get a little hung up on "realizing the loss." If you take a 30% hit in one equity fund, sell it, and buy another equity fund, you really haven't realized the loss, if the second fund recovers. We're talking about mutual funds that track a large population of securities after all. And we're talking about non-diversifiable risk (market risk). This assumes the fund you buy is similar to the one you sold.
He said a transfer from a 401K to a Roth IRA. Roth is after tax while 401K is pre tax. There are tax consequences of doing that.
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