I think it really depends upon what you are ultimately out there trying to do as a guitarist. Many people want to do nothing more than strum their lives away playing and singing using basic chords, so would I tell them, note reading or even knowing the notes on the neck are important? Not at all, people play with different motivations for doing so.
But if any student wants to truly understand the guitar, then at the very foundation, is being able to play and say and say and play any note of the neck of the guitar instantly. Any serious attempt has to begin there, or else, it's pointless. The question then, becomes, how do I learn the notes on the neck, or how long is that supposed to take me? This is the fundamanental, "choking" point as to why so many guitarists do not know/understand music theory. A guitar player that plays well, has only functional understanding of a piece. He may be able to execute a passage brilliantly, but that doesn't mean he understands what he's doing.
And there are plenty of high level, functioning guitarists out there, you may be one of them, and there's nothing wrong with that, but at some point, many want to get away from that and start understanding what they are doing and why it works - because ultimately for them its about playing what's in their head and bringing it to the fingers as their own creative musical voice.
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