I wonder if this supposed preference for literal translation comes from people who are not multi-lingual. Because it just strikes me as such a misunderstanding of how language itself works. Language is the product of the culture, its own structural rules (how you are allowed to structure sentences and things like that), and its available vocabulary. If two languages are really close, in the sense that most cultural practices are shared or at least easily understood, if the structural properties are fairly similar and you have a mostly matching vocabulary, then any good translation will probably be relatively literal anyway.
But when you take something like Japanese, Chinese, or anything else that's very removed from most Western languages, then a literal translation is almost always the dumbest fucking choice. Maybe someone got used to terrible scanlations of mangas and can "deal with it", but it doesn't excuse how to the average person, most of those translations are complete gibberish and just bad. Good translation is always also good localisation.
I don't fully agree, or at least not in the context of
highly specific / subculture translation tasks.
As an example, let's take FF12 and Persona 4.
The former is, in many ways, quite similar to a classic (western) high-fantasy tale. Princesses, political intrigue, ancient artifacts, a Renaissance-inspired society. Going with a full-on non-literal localization here makes perfect sense and led to a fantastic outcome.
The latter, however, is a story about Japanese highschoolers doing very Japanese highschooler things in a small Japanese town. You are never feasibly going to localize that setting (you'd have to develop an entirely different game). So, to me, attempts at "over-localization" of just the dialogue,
in this specific context, make no sense. I'd argue that they tried that in Persona 2 (with a similar setting) and it was worse off for it.
That is not to say that I enjoy listening to American VAs using Japanese honorifics in English speech in a case like that; but honestly, personally I don't believe in dubbing for this kind of content at all.
To put it more succinctly, I think people rarely put enough emphasis on the type and specificity of the content that is being localized when they talk about the merits of more or less literal translation.