Gentiles or "Nations"?

The most recent rather interesting development in Pauline studies is the release of Pilch and Malina's social-science commentary on Paul, which looks at Paul's writings in relation to the cultural climate of his day.

By far the most controversial claim they make is that "Gentiles" in fact means "Israelites" and that Paul was not an apostle to the Gentiles at all.

How can this be so? Well, firstly, they argue that "Jew" is actually a more limited term meaning "Judean" - a reference to the Israelites that lived in Judea. Whereas the word translated "Gentiles" is literally "Nations" and in fact refers (they say) to the Israelites who were living in other Nations. Thus once Paul sees that the Judeans have rejected the Gospel, he takes the Gospel out to the Jews living among the Nations. Pilch and Malina hypothesise that these Israelites had become very Hellenised, and didn't follow most of the Jewish Law and even worshipped the Greek/Roman gods. They are the "Gentiles" that Paul is calling back to follow the God of their ancestors. According to P&M Paul had nothing but contempt for real Gentiles, and that in his letters he only mentions them once - late in his letter to the Romans because he's heard there are Gentiles in the church there (there being none in the Churches he himself has founded) - he says they are like a branch grafted in and will be removed and replaced if they don't bear fruit (because of the way ancient grafting techniques worked, such branches virtually never bore fruit).

I'm not sure what to make of Pilch and Malina's hypothesis. It seems averagely plausible. I suppose the biggest question in my mind is this: At some point the Church did let real gentiles in and they eventually expanded to comprise the vast majority of Christians. At what point did this happen - if it wasn't Paul who did it who was it and why do we have no record of the conflict that would have been involved?