Various good points here, as mentioned, some of the original ideas behind the features were reducing clutter and repetition.
One of the original thoughts was that every reply to a topic should be valuable to the topic rather than these sort of back-and-fourth discussion chains between specific people that require closer tracking.
In practice that can be hard to avoid, and it might be unreasonable to expect this sort of diligence everywhere… especially in an environment where other major platforms thread (which I’d argue is intended to suppress discussion because there are too many people involved).
What’s the problem?
To re-demonstrate the issues this un-supressed duplication causes:
-
A full quote after the post feels silly
-
Even sillier if you expand the “1 Reply”
-
And when you expand “1 reply” and “replied to”… pure silliness:
This just looks confusing to me.
Suppression creates new problems
The behavior is entirely opaque to people using it, so as @schneeland mentioned, one might wonder “did I not reply correctly?” and there’s no obvious answer.
How might we solve it?
Personally I think we should eliminate the suppression options entirely and re-approach the issue with the goal of finding a default behavior that works well enough for everyone.
Replies above
When we have successive replies like this, perhaps we should change the behavior. Expanding to see the duplicate replies in these cases provides zero value, we know that… but the “in reply to” indicator can provide valuable context even in this situation:
I’m not agreeing with the topic there 
I’m directly replying to domenic. Now, I don’t need to see that expanded… but I could be wondering “hmm is this in reply to the post immediately above… or a different one domenic made”? Maybe here we just jump you to the post and highlight it temporarily to clarify (we already do post jumping on mobile)
If the gap between posts becomes larger, then we can then expand on click so you’re not losing your position. This feels like the best of both worlds to me.
Replies below
This feels a little trickier… because there may be many replies.
I think we could change the behavior to match the above when there’s only 1 reply in close proximity: scroll and highlight. Maybe that’s enough and the multiple reply behavior remains:
There's another problem with this view, but it's a bit of a tangent
This feature has created some confusion from time to time… at least a few people have seen this and think “hey Discourse supports threading”!
We also have a lesser-used separate mode for this that called Enable filtered replies view: Optional filtered replies view
When enabled, rather than showing embedded replies that look like a thread, we collapse unrelated posts to only show replies:
IMO this solves the “looks like a thread” problem and better represents the flat structure of the topic. But the experience doesn’t feel good enough to use as a default to me… perhaps we can do some enhancement and reconsider if we want to avoid the “looks like a thread” issue?