As an avid fly guy,and a lifelong canal guy I might be able to comment on both.
The canal is about as unfriendly an enviroment as one can find to fly fish. Can it be done effectively...Yes. But only under specific conditions, and in a very few places. Heavy rods (10-12wt), sinking lines, heavy leaders and big flies are the ticket.
But what you saw the other day really isn't all that unusual. On good early morning "plugging tides" you'll see a host of knowlegable fishermen tossing plugs, jigs, and plastics with amazing results.
As far as equipment, a level wind, conventional is not longer a nessesity. I still use one exclusively, but I'm too old and thick to change.
The new generation of graphite spinning rods, and super capacity, high speed spinning reels have leveled the playing field. Factor in super braids...and the advantage just might go to spinning rods these days.
More and more top notch canal guys have made the switch to spinning rods, reels/loaded with braid. 90-100 yards cast which once were the exclusive domain of long time conventional tossers, are now easily achieved in the hands of a competent spinning guy.