Professionally I’m a collaborative pianist. My job is accompanying pre-college instrumental students in auditions, recitals, master classes. Trust me, there’s a near infinite variety of ways to sound awful, only some of which relate to the mode of practice you describe. (Stopping on mistakes is not an inherently bad thing, but it does require that you consciously reintegrate it, which most students do not do.)
I do agree with the observation that some of these problems relate to playing in isolation. This is true of the vast majority of piano students, most of whom will never in the course of their training play in chamber music settings, or even accompany others. This is a very neglected area of piano pedagogy. It also relates to the great difficulty of most chamber works for piano. There’s practically nothing out there for piano trio (piano, vln, cello), quartet, quintet, etc that’s not a RCM grade 10++ difficulty. By the time students reach this level, the rhythmic/collaborative horse is out of the barn.