And don't get me started on people who try to learn pieces like FI/Moonlight 3rd/LC with no experience at all. It is a fast road to injury.
There's two possible explanations:They've lost sight of the music, and are engaging with piano for some other reason. Often it stems from insecurity mixed with the sunken cost fallacy. Regardless, once you've lost sight of the music you produce bad music.They simply don't know how to articulate what they want to listen to. Easy pieces are usually less intense or less brilliant or whatever than hard pieces, but they don't know the proper word to describe these things so they just flock to difficulty. Chopin Etude op. 10 no. 12 is very difficult, but it's also very passionate and exciting. They may simply be conflating the two accidentally through lack of experience.
I don't think it does that much harm generally. To a beginner, learning a hard piece is an easy, early win. I know that learning some hard pieces was what gave me the confidence that I could actually learn the piano. Initially, coordinating both hands independently seems so daunting that you don't have too much room to think about dynamics, articulation, phrasing, pedal and so on. You approximate it instead. Also a beginner's ear is often not sufficiently developed to the point where they could pay close attention to those nuances. Also, I think that it's a certain demographic of piano fans which obsesses over difficulty. The layman is much more likely to be interested in playing River Flows in You, or Fur Elise or Richard Clayderman.
Very good points! The second is especially important. Teachers often give students boring exercises because that is what they were taught. And competitive young people often want fiery, intense music as opposed to an endless stream of sonatinas and the like.