Pretty much you got it right. If you go over the 1/8 rule it will 99.9 percent alter the intended frequency response of the IEM which means altering the sound. In random cases this may actually benefit the listener but let's be honest here. That's a far-shot and just an excuse to justify lazy design flaws by these manufacturers. Kinda like how P2P is ruining PC games because the game developers are getting lazy and cheap and are focusing on crap console games (lowering standards one game at a time ;).
Lol are you also referring also to games that are made with console in mind and crappily ported to PC to make PC users happy?