I've heard that argument at FedEx, too. It makes no sense.

If your aircraft intercepts the LOC, then who cares how it got there. What if you're hand-flying with the flight director off?

Arming NAV, white needles or any other mode and using that to intercept the LOC is transparent to ATC, as long as you end up with the raw data LOC display centered.

Obviously if you were going to have the autopilot track it and intercept G/S, you'll eventually need to enter a mode that actually tracks the ILS.

But, for long distance intercepts of the LOC where signal strength may be low, I don't see the problem.