All that's being disabled is the external control.
I have a V2 with "Out of home control" set to disabled and it works fine with my Echo Dot and with the Amazon Alexa apps on my phone and iPad.
My guess is that the bridge sends status information, including the bridge's IP address, to the Hue site, and the Echo can retrieve that information in order to find the IP address to send commands to.
If you're willing to set up port forwarding (and DDNS if needed) there are apps that allow you to enter both internal and external addresses, so you can still have external control.
And even without upgrading the bridge, bulbs will still work just fine with the older one, as long as you are trying to access them on your LAN instead of while you are outside of home. What Philips did here sounds very reasonable to me imo.