I did find it pretty viscerally disgusting first time it happened. I prefer my horror elements a little more understated, what the imagination conjures can be far more scary than having all the gory details shoved in your face. I suppose this is another symptom of Larian's penchant for the kaboom, in-your-face style. Subtlety or leaving things to the imagination seems rare in this game.
But thats the point is it not?????? The mind flayers are meant to be alien, freakish and gut churning. That scene quickly and effectively demonstrates just how horrible the mind flayers are. They prey on intelligent beings and destroy them utterly in the process, taking everything that makes them human. Kudos yet again to Larian.
I agree on your description of them but somehow I found them more menacing in BG2...