Surely it's all a matter of degree, how many flashes over what period of time. Just like beer, moderation in everything seems appropriate.
Definitely, but like beer, moderation is VERY subjective as beer bellies will betray. 
On the other hand, a base ISO of 100, or even 200, plus the dominance of sub-35mm full frame sensors means that digital shooters are hitting subjects with far less strobe power than they did with film. The difference between Velvia and a D300 for pygmy shooting would be about 3 stops I believe.
Good point. However, even back then a D1x or D30 on a 500mb card (woooooo) could get 100-200 shots, more if jpg. Bring it forward 5 years and now we can hit anything with 4-500 shots with our strobes. And even the little Inons are more powerful than my 105sb. So the digital 'flasher' may be less powerful but more plentiful. 
I've also noticed the less powerful strobes need to be shoved right into the face of the subjects to light the narrow apertures.
An interesting question is how much more sensitive one critter is over another in this regard? Are those who advocate this prepared to limit their shooting of all subjects to 2 or 3 shots? Will they stop using strobes altogether?
Very interesting question. I know of one resort which limits their normal clients to a few shots of pygmies (their pro clients get a lot more leeway and yes that is a very contentious issue). It does bring up a very interesting question I'd mentioned before: would people go to a place if they could shoot only 10 shots of an endemic species per person per dive? What is the acceptable threshold? I posed this question to an enthusiast friend who said he'd fly to shoot a rare fish with a 20 shot minimum.
After all, strobes momentarily blind any creature with eyes like our own and nearly all of them are subject to predation. That's the argument, isn't it?
Well some creatures while blinded and stunned by 2 350W strobes, may not be subject to predation. 
Many of those most sensitive to this issue tend to be the ones that have shot these subjects more than anyone else. I've never known a photo pro that wasn't willing to sit on a subject for an entire dive and fill up a flash card. How do we know that it's only pygmies that suffer strobe fatigue? How do we know that pygmies do? They are, after all, reliant on camouflage for protection and they know when they are spotted. If a pygmy feels vulnerable because of too much strobe traffic, it may move on. That would not be evidence that it's been irreparably harmed.
Fair enough. Still many of those same shooters may also learn how to moderate their light usage. It's a judgement call. If you are still observing behavior like feeding or mating, it's likely the strobes/lights are not impacting as much as if the little critter is dodging and hiding to avoid the lights. When it falls down (maybe playing possum or in shock) maybe it's time to move on?
I tend to travel with a few friends so I have to be sure that we all get shots of the same creature before it coinks out.
Seriously though, a discussion like this will always have the more conscientious shooter pushing for even more moderation and the flip side "if it ain't hurting, what's the big deal?" crowd. It doesn't have to boil down to an Ethics or Philosophy 101 about anthropocentrism and biocentrism. I do think it's good to bring these discussion on for people to judge for themselves.