What is the difference between research and a thesis at the B.S./M.S. level?
A thesis is always research, but not all research is theses.

In a five-year Masters program, one would definitely do a thesis, but these programs often have very stiff course requirements, which leave little time for research except the thesis.  Given this, it is often the case that the only research that a student does is the thesis, and that only to the level of sufficiency to obtain the degree.  Many 5-year Masters Theses are thus no better than 4-year Bachelor's theses, but will indeed be held to a higher standard (e.g., as though one had gone through a separate 2-years Masters program).

Last-minute and "merely sufficient" research work of this sort will also be much less effective at building trust and relationships with a faculty member than a longer time working on research as an undergraduate, even at a "lower" level.  This significantly impacts one's ability to get a good letter of recommendation, which is another key for PhD admission.

I suspect this is why they recommend as they do, and think it's a good thing that they do so.