The whole "sharing a wall" vs. "two walls abutting" seems somewhat academic to me from a homeowner perspective. I'm not sure why it makes such a difference.
The drawback of having no setbacks is that your pedestrians have to mingle with the car traffic? The example in the article didn't make it look very desirable to me.
On your second point, I think a few different things are being conflated here. Usually setback rules require empty land between the building and the sidewalk, so they don’t serve to create any buffer between pedestrians and vehicles.
Also, some cities have streets with no setback and no sidewalk, where vehicle through traffic is generally banned. You could debate whether this is a good idea. Personally, I found having the entire street for pedestrian traffic, while occasionally stepping out of the way of a vehicle traveling at a few mph was more comfortable than walking along the sidewalk with vehicles traveling at 30 mph a short distance away.
I think the difference is that in the case of sharing a wall with a neighbor you have a) extra noise leakage that you wouldn’t if you had that extra layer, b) shared infrastructure, which makes things a little harder if you need to make changes/have a plumbing issue/etc. Also the roof is continuous between townhomes, so when it comes time to replace that you have to negotiate with the neighbor.
The drawback of having no setbacks is that your pedestrians have to mingle with the car traffic? The example in the article didn't make it look very desirable to me.