What does it mean if iostat shows 100% busy wait but the CPU is completely idle?

It means that the load is due to IO wait, not CPU contention. So, accessing a hard drive, accessing an NFS share, accessing swap space (and hence (usually) a local hard drive... I'm not sure if pure network access contributes to this, but my gut says no. NFS just adds to it because it uses the FS layer. "top" usually has a "wait" or "iowait" percentage that would usually show this.

IO Stat shouldn't be 100%. If you have a heavy amount of disk IO, it may be high, above 50%, but exactly 100% usually means something is wrong your IO subsystem. This has happened to me when I've had a hard drive in the early stages of failure, when the disk takes longer and longer to respond to requests, but still responds.

Or it could just be a very badly written application. A simple DTrace script should tell you which it is.