I think experiencing what being hit is like can be an invaluable tool to forge the body and mind and avoid collapsing either mentally or physically in a real situation. Same with weapons, pain can be a good teacher.
That said I'm of the opinion that not all training should be "on steroids" or "high adrenaline" and there should be a balance between more structured training and free or high intensity training, whether the goal is to survive in a fight or not. I've seen in a program and read on the news where an experienced grappler (primed for aggressive/competitive action) was too eager to take down an assailant and he didn't noticed a knife being pulled...
Seconded. Or the two friends approaching from behind as one friend of the family recently encountered. No matter how trained you are, fights have a nasty habit of degenerating to very base instincts. Avoidance is almost always smarter in my opinion: Better a bruised ego than a bruised brain.
Plus there are studies which suggest the more aggression you act with, the more aggression you tend to respond with; given the above I think it more useful to start with a degree of calm and work on infusing that calm with increasing degrees of intensity.