Yep, that's wrong, dangerous, and potentially lethal. Even though the blower motor is rated spark proof, the switch, and connections are not. This is Transport Canadas' "safe refueling checklist:
Safe Fueling Precautions
1. Secure boat to the dock.
2. Switch off engine(s).
3. Extinguish all open flames.
4. Do not use electrical switches.
5. No smoking.
6. Close ports, hatches, and doors.
7. Portable tanks should be refueled ashore.
8. Make certain all passengers are ashore.
9. Determine quantity of fuel required.
10. Hold hose nozzle firmly against fill pipe opening.
11. Do not overfill. Prevent fuel from falling into the water during fueling. This can harm the marine environment.
12. Wipe up all spillage.
13. Open ports, hatches, and doors to ventilate.
14. Turn blower on for four minutes minimum.
15. Do the sniff test.
16.Start engines(s).
17. Re-board passengers.
18. Untie from dock and cast off.
So, the boat operator in question not only should have had all devices turned off, but also should have had his family ashore while refueling.
Not sure about other areas, but in Canada it's actually illegal to refuel your own boat at a marina, the marina staff must refuel, and cannot refuel any vessel while passengers are aboard.
Good question, Richard, hopefully by posting this a few incidents will be prevented. A boat fire is an ugly thing.