In short, we need a way to tell whether interactions are allowed without having to actually try interacting with someone.
The Avatar Interaction Disabled icon was removed from nameplates, but we really need it back.
I think the value of having an interaction icon is that you can know whether two avatars can interact without having to physically touch the other person to check.
Compared to the potential harassment caused by displaying an “interactions not allowed” icon, I think having to touch someone just to confirm their interaction status would be much more awkward. This is especially true for hosts running interactive games, as checking the interaction icons would be much easier than confirming each player individually.