The page at http://learn.jquery.com/plugins/stateful-plugins-with-widget-factory/ contains the phrase:
all functions will be executed within the context of that instance
This is misleading, and there is no further explanation regarding context on the page. If you use the standard jQuery methods (on, bind) to set widget functions as event callbacks, they will be executed with this set to the event target element (just like usual). According to the API docs for Widget Factory, the _on() method is available if you want to avoid the context change. It would be helpful if the tutorial page called this out.