You did not shoot any holes in the example. A decision was made, and this decision made LO more fit for some users and less fit for others. This is precisely the spaghetti sauce issue.
You claim that I said "Any good feature can be done in LO" is a false dichotomy. That is misrepresenting what I said. Saying that an idea is either good one or not it is is a false dichotomy. This is what spaghetti sauce producers have been doing before: trying to achieve some platonic idealism of "best spaghetti sauce". Since being proven wrong, they have embraced diversity.
The problem that people want bits from two different spaghetti sauces does exist and is also described by Malcom Gladwell. Some people like plain and other prefer spicy. Some people large chunks and others like small chunks.
So if you increase the chunk size you make the spaghetti sauce more palatable to some consumers and less palatable to others. This does not mean that the idea "increase chunk size" is good or bad per se.
Then you say that "you could get a situation where people want bits from both suites. [omg! a generality] This situation can't happen with spaghetti sauce". Of course this can happen in spaghetti sauce too. With the two parameters spice/chunk size you can divide consumers into four (let's assume non-empty) groups according to preference:
With one brand of spaghetti sauce you can only satisfy one group fully. The classic platonic-idealism approach is that you should just go with the largest group.
With two brands however, you can satisfy two groups fully.
The fact that there remain users who are not fully satisfied by either does not disprove the point at all. On the contrary, it indicates that there might be an audience for a third office suite! (call it RedOffice, BROffice, OOo4Kids or whatever).
Whether the trade-off is worth it is a different issue. Your "OO + LO > OO" inequation suggests that you think it is not worth it. The sheer number of decisions that are made during development, and the fact that tastes are clustered according to Mr. Gladwell, makes me think that on the contrary diversity is preferable.