Damages it by having the funds there to continue developing it.
Interesting.
in an ideal world where the game could sustain itsself without doing it, then the game would 100% be better for it because earning skins and other cosmetics in games IS game content in and of itsself. perhaps it is weak psycholagy but i would enjoy working to get allied in as many random factions as i could if i knew that allied cmdrs got a free skin for a certain ship for doing it for instance.
for me that would be a huge increase in fun without FD actually making any new content at all. Back in the day DB voiced how he was surprised and a bit dissapointed that players found a small group of systems, got allied and never moved beyond them..... The reason i think is because really objectively every system is the same so once you have a good A B C trade route witha decent res, regular CZs and a good station for gearing up there really is no point for a lot of players to move on.
however i think we would get players migrating far more if once you were allied and got your skin you needed to go elsewhere to get another, or if once you had got X number of 1st discoverds or what ever you got a bobblehead. etc etc etc. of course you would then need a (room in bigger ships once we get legs) panel in the game somewhere where we could see models of all our stuff we earned, a sort of trophy cabinet... again not for all players but myself and i believe others would love trying to get them all.
so from that view, monetising cosmetics DOES harm the game. earning coin for them in game is a step forward but imo still wont give the kind of thing i am talking about. As a non competetive player this is why i preferred the original KSer pitch of everything gettable in game but with a cash shop for credits... but i totally respect why FD changed it to what it is. a necessary evil perhaps.?