You don't seem to know much about the Terry Davis situation. When a persons posts are 50% racist slurs, there isn't much choice but to block them from posting.
The hellban lets that person still post and converse with people who actively seek him out, without the downsides of having tons of hate speech all over the front page of HN.
It's been said before and it'll be said again, schizophrenia is not a catch-all excuse for someone in a public forum.