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I don't understand why instant-typing-display was implemented in the first place. Or rather, I understand that it's supposed to speed up communication, but the drawbacks to it seem so huge in comparison to the tiny benefit that it really just feels like engineering-porn; i.e. a "cool" feature that does more to showcase technical brilliance than to serve any real need.

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I think it serves a very real need: discipline. By making it the most basic wave feature, they're committing to making sure that the system can always handle a constant stream of realtime updates from every user. If anybody breaks it or introduces a performance regression, everybody will notice. It also means that people writing robots and extensions can assume that they can deal with updates in realtime, on such a fine grained level. If extension writers had to worry that per-character updates might introduce too much overhead, it would hamper their creativity.

It really does speed up communication though. When I ran a BBS with a split-screen chat that had this feature, it saved a lot of typing when you could start to already reply the moment you understood what they meant, instead of having to wait them press enter.

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