It is true that our lower two functions can truncate the production of our upper two functions, but this is not necessarily a bad thing. It is actually worse to let our two near side functions run unregulated than it is to every so often rein them in with our lower ones.
It shouldn't really be seen as "watering down" your Dominant and auxiliary, because we are actually refining what our dominant and auxiliary produces with our lower functions, which gives us an even stronger result.
I'll give you an example using my own type: I can use Ti and Ne alone to come up with theoretical models. However if I don't refine these models with Si and Fe, they will not be concrete, and they will be detached from how human beings actually work. To actually have a true understanding of something that can be related to other human beings, I would have to refine my Ti heavy model with holistic elements Fe in order to have something that people can actually relate to and apply. If Ne was never modulated by Si, all I would have is uncertain possibilities and no real answers that I could stand on.
Yes, this is in a sense slowing down my the production of my Ti-Ne, but it is a necessary sacrifice if I want to actually have a working model. Because pure Ti-Ne only fills in so much of the picture.
The same goes for Ni-Fe, it is your strongest and most reliable functions, but if they are not counter balanced in any way by Ti-Se, they will only produce unrealistic and illogical results.
This can be a bad thing however, when a person is over doing it. When they are over modulating their Top functions for unnecessary reasons and not letting them flow as freely as they should be. So the idea is to find a golden mean, knowing exactly when to let your functions flow, and when to rein them in.
(Believe it or not, I have had to tell my Ti to shut up before. When I am trying to read a person it is an almost purely holistic process, basically watching patterns occur and letting my Ne take in patterns that I can concretize and find meaning for in my Si. So every so often my Ti will perk up and try to base something on probability, "How likely is it would this person _____?", and I literally have to silence it before my mind is biased by probability.)