I never got this argument.
I can see an argument for "We need to reserve some headroom and footroom for Darker Than Common Black and Brighter Than Common White for occasional emphasis scenarios. Or, for differentiation from pure black/white in images and background elements."
But, I read "dial down the harsh contrast" as "We presume users have their monitor contrast settings set too high and intentionally use a reduced range to compensate for their mistake even though it costs us a bit of color precision."
Meanwhile, I might have an LCD monitor with the contrast dialed down next to an OLED with the brightness and contrast cranked up. And, even if the common case user setup is not so extreme, it still varies wildly in practice.
As a game engine developer, this is something I've had to deal with in practice for a long time... Reduced contrast range as a stylistic choice can be quite valid. But, trying to predict user viewing conditions is wishful thinking.