This is the most "pure" way to pass a stereo signal through the receiver. This is what the "audiophiles" want: The signal, as pure as God intended with no additional processing. In such case, this choice means you get out exactly what you put in. Stereo has NO LFE channel to begin with so nothing is lost. It pays to have good mains here. If one doesn't, then one should not be playing the audiophile game here.
This does imply a minimum amount of signal processing to eke out some sort of common bass channel from a stereo signal. It's not pure but, to me, if it's available it presents a decent compromise, particularly if the mains aren't up to the task of handling the full range required for satisfying musical enjoyment. Whether or not this will still allow one to claim the highly desired "audiophile" status, I don't know, but that's a decision everyone has to make for themselves.
Of course, if one doesn't have something akin to this "straight" mode you describe, then the option still exists to run the sub at the speaker level, set the receiver to "no sub-woofer", the mains to "large", and take it as it comes. All the music, or whatever, will be channeled to the mains and the sub will still pick it up, albeit without any fancy bass management. This would work great with the "pure direct" mode that audiophiles love.
I personally use a sub but run the mains full range and use the crossover in the sub as a low pass filter to only send what the mains can't handle to it and, for music, use the "stereo" mode. Like Sholling said, I don't hear any difference between this and a more direct mode. I don't worry if people consider me an "audiophile" or not. I've been playing this game to long and have enough confidence in myself to worry about labels.