Honestly, if they didn't want to program "Time" they could still set up a nighttime variant of the map by having us toggle the end day thing and then traveling out into the area. Creatures could move to a different position for night and have different nightime actions like sometimes sleeping and sometimes night will be more guarded, and perhaps different quests and characters will appear or be progressed. While this suggestion might be janky, it would just amount to a day and night toggle that adds some more depth to the game.
I really dislike their rationale for it too.
Among the examples they used I remeber that they'd need to add bedroom for all characters, give them a daily schedule and all that jazz.
And frankly THAT would cost a lot, but it would also be absolute overkill that no one is asking them to do.
The assumption that "You either go ALL THE WAY IN or you shouldn't even bother" is a stupid one. Most of us would gladly accept the compromises necessary (i.e. "daily" NPC that simply disappear at night -and the other way around- and similar shit).
There are plenty of advantages and improvements enabled even by a more conventional and modest implementation of the feature. Like the old BG 1 and 2 already proved in several circumstances and like plenty of other games did after them.
Well, actually even before, since I think it's Ultima that introduced it first.
And what's more relevant, there are consequences of not having a D/N cycle that go way beyond cosmetic changes or the chances to to add time-specific encounter design.
The whole fact that the game doesn't have a proper tiredness mechanic and that their rest system is such a half-baked and yet convoluted mess are arguably all indirect consequences of having a game that doesn't consistently account for time passing and doesn't differentiate about context.
This is why Owlcat can get away with a "cheap" solution with characters camping anywhere (at a risk) and having banters with each other while Larian has an instanced magical place that somehow is the same wherever you are traveling (even the Underdark!), improves by itself over time (who's building these fucking tents, anyway?) and where ALL the character interactions take place.
And somehow the first solution manages to comes off as incomparably more effective, consistent and immersive than the second, despise most likely costing a fraction.