If by "a little toxicity" you mean a little bit of aggressiveness, sarcasm, etc., I agree with you. It depends a lot on the community though - in some, allowing it will be counter-productive.

If however you mean harassment and hate speech, as the author of the text, I strongly disagree. If the mod doesn't curb down those things, they might not be "lording" over the discourse, but other users are - because

• users shut each other up through harassment
• hate speech silences whole groups, as they leave the community

Another detail is that you don't need to control the discourse to curb down harassment, since it's only behavioural and not discursive in nature.

So IMO when it comes to those two things the problem is not overzealous mods, but dumb ones not doing due diligence, who are a bit too eager to falsely accuse their own users to be voicing hate speech or harassing each other when it is not the case.

[Sorry for the wall of text.]