note that using it is fine with this iteration because it is not meant to be used for encryption but for "plausible deniability".
Well, that's also true. Just leaving a small amount of coins under your seed unprotected by a passphrase is enough to give you plausible deniability. Leaving a small amount under a decoy passphrase is even better. Even if you only have coins under your real passphrase, you could use the excuse that you were backing up the phrase before sending any coins to it. Someone finding the seed but not knowing what the real passphrase is, or even if one exists, is unlikely to spend a significant amount of time trying to brute force it, and as you say, it gives you plausible deniability for a $5 wrench attack.
On the other hand, if somebody finds your encrypted seed, then I suppose it depends on whether or not they know that what they have found is a seed, and not just some other encrypted data which would be worthless to them. If they did know it was a seed, then it is much more likely they would assume it is holding a significant amount of funds and put more effort in to attempting to crack it.
Perhaps someone might want to go down both routes, and encrypt their seed in addition to using a passphrase, but that now means you have to back up three things (seed, encryption key, passphrase), in multiple, separate, secure locations. I'd be running out of places I can trust are secure at that point, short of renting out multiple safety deposit boxes.