I think this ruling makes sense, if you want to use an example using money
I have to pay $5 to get in a tournament, if I instead spend it on some snacks I don't get to go to the tournament (unless I pay another $5)
Otherwise it makes sense that things getting insteaded away shouldn't work because it never really happened, I didn't actually discard a good card for I am Holy, or I didn't remove a demon from the game for Suicidal Swine Stamped so why should I get the benifit?
I also understand the other side saying that the instead comes after the trigger is met, but this is really a timing thing, if instead happens before triggers are checked for (like how Seven Sons of Sceva doesn't trigger angel's sword if you switch for a demon) then they shouldn't happen, if instead happens after triggers are checked then it should work, but I think it makes sense to happen before triggers check.