My vote is it's hooey. If you want to use sheets and you hand quilt, use sheets with a lower thread count. If you are concerned about the needle cutting threads, use a smaller, sharper needle and/or a lower thread count sheet.
I personally use sheets all the time; both for backings and for piecing. The fabric as a rule, is very sturdy and long lasting. By checking the label, you can be assured of getting 100% cotton. I also use bed ruffles, curtains, pillow shams, etc. You can find high quality if you are selective and get yards of fabric at rediculously low prices. Nothing beats a little used bed ruffle for kaleidascope fabric with lots and lots of repeats, especially a king or queen.