One of the nice things about sponsor segments is that they don’t involve YouTube, so the creator gets more benefit from the deal, but of course done badly (and I assume this must be the case with many of the generic irrelevant VPN ads for example) they will harm retention and thus limit reach.
Your “whole video” suggestion is really “advertise smarter” IMO, which I completely agree with. Personally I’ve never done a “reading a 30-second script about how great product X is” type segment, but I have done videos where I try out “product X” in some way that’s relevant to my audience. It’s more product placement than direct advertising, but I guess even that is unpalatable to some.