I'm not an advocate that everyone regularly train full contact; that's just not realistic for the average person with a moderate interest in martial arts as a hobby. I do believe that anyone who intends to consider themselves a serious and effective fighter needs at least a bit of full contact experience, preferably cross-style and with un-trained buddies as well.
For any martial arts hobbyist though, I think moderate contact is still necessary for you to have any idea of what you're really doing. While you're light-contact punch and your full contact punch should have the same technique, if you never practice it live, there's a good chance it won't be.
Aside from the obvious, that a solid tap to the forehead with a fist is different on your hand then a strong, full-power reverse, that that pretty wrist-lock to arm-bar is pretty hard if the other guy is really fighting it and hitting with his free hand, that that flurry of patty-tappy strikes isn't very effective, meanwhile the other guy just hauls back and slugs you once....
Aside from all that testing of technique, tactics, and strategy, the first time you really get your nose cracked is an eye-opener (eye-closer??), and you want that initial, "oh wow, this hurts oh my god he actually hit me! I'm BLEEDING!" to happen when your opponent is friendly, not when that moment of startled pause lands you in the ER.
I do have a serious gripe about no-contact sparring, aside from what I've already mentioned. Every form of sparring has trade-offs, compromises from realism that must be made to able to train regularly and with some degree of safety. For example, most sport arts forbid many very unpleasant or damaging techniques, like head kicks to a grounded opponent, finger breaks, etc, and usually use some assortment of padded gear. A padded punch reacts nothing like a bare punch, for the striker or strikee. (I like to have people hit me with a glove on in the forehead, as hard as they feel like, have them take the glove off and do it again. It drives home the point that the gloves protect your hands in exactly the same amount as they protect the target.)
However, the trade-off in no-contact sparring is the worst possible trade-off. It's the trade-off of distancing. In a striking art, distancing and positioning are the most important things. (not unlike much grappling) If you train to fight 10 inches farther apart than you should, you will not automatically be able to make the switch when misfortune calls. You might be able to pick up the speed, to follow through on technique, to hit with more power, etc, the trade-offs from other sparring games, but distance is something that needs to be very accurate, and very intuitive.
If you train to kick, stopping two inches from your opponent's body, then when you need to hit hard, you will still stop two inches short. Or worse, actually hit at the right distance, find you developed bad balance habits, and stagger backward out of control...
I don't want to denigrate anyone who enjoys no-contact sparring, and I'm sure it is great fun and a wonderful aerobic workout and timing and reactions drill, but as effective, real-world training, I would be tempted to label it a liability, rather than an asset.
