Agreed, distinction will always be vague.

If we are forced to put structure around it though, I think that framework is reasonable, despite its flaws.

The highest "layer" built on Bitcoin will be defined as the "application" layer. However, whether it ends up being the 3rd, 4th, or 5th layer etc. is still TBD. All layers sitting below the application layer will be defined as infrastructure layers. This is similar to the current internet stack, which consists of a link layer, a network layer, a transport layer and followed by an application layer (the highest layer).

Prior to Lightning and other 'layer-2s', all that existed was the Bitcoin basechain. At that point in time, the layer-1 blockchain was the application layer, enabling participants to transact with one another. However, the creation of the Lightning network brought another infrastructure layer to Bitcoin, adding additional functionality, beyond just transacting value.

Each incremental infrastructure layer should improve the functionality and potential number of applications that can be built on Bitcoin. Once the the marginal utility from adding infrastucture layers approaches zero, no more layers will be added. At this point, we'll be able to define what the ultimate "application layer" on Bitcoin will be.

Maybe it will be layer 3 or 4, however, there is no reason to think that it couldn't be layer 6, 7 or 8. Only time will tell...