I thought Musk intended to tunnel under inhabited areas then run down the middle of the north/south freeway. It could be come only half crazy if he can get tunneling costs waaaaay down and tunneling speeds waaaaaay up.
They hyperloop can't follow interstate highways because it can't turn or rise or descend. It needs to be almost perfectly straight and perfectly level. High speed rail requires a very wide turning radius (like 5,000 feet) but travel at higher speeds requires an even wider radius (follow the TGV line between Paris and Lyon on Google Earth and you will see that it turns quite often). The minimum turning radius needed for travel at 600-700mph is much, much wider than that. I have seen some people estimate a turning radius of at least 50,000 feet and more like 100,000 feet.
This means that it cannot simply surface out in the country and tunnel as it approaches a city. It mostly needs to be underground and likely very deep in order to pass under rivers and other bodies of water.
California is about to break ground on the gigantic pair of 28-foot diameter, 7-mile long tunnels near Merced. Those will be followed in the 2020s by up to 20 miles of tunnels between Burbank and Palmdale. These gigantic tunnel projects will consume a huge piece of the high speed rail budget.
The tunnel bore needed for high speed rail is gigantic because of the amount of air the trains push. By comparison, typical subway bores are 21 feet. The hyperloop, if it is passenger-only, could be built with a much smaller diameter bore than high speed rail. But it probably couldn't be much smaller than the 21 feet needed for subways and conventional rail if they want to move freight. Passenger-only could be somewhat smaller, but probably not smaller than about 18-feet.
Do the math on a pair of 18-foot diameter bores between LA and SF. The sheer volume of earth to be moved is cosmic.