Good question. I have met some teams that insist on private offices, and some that get very good results with "project rooms," where everyone in the same room is working on the exact same project.
A lot of things have changed since 1973, but also don't forget that this straw-man argument is being made by someone with a sample size of one. Sometimes when people say "We tried such-and-such and it failed," they are not describing something that always or even usually failed, just that they failed when they tried it once.
Somebody else may have tried it in 1973 and gotten wonderful results. Who knows?
My sample size is also one. This isn't arguing against your main point, I just had to chime in, as it's one thing I've disliked about my company moving to an Agile methodology. I personally find it very distracting, but that may just be because we're doing "team rooms" wrong.
I think this is the key. Are interrupts to one person also usually of relevance to another? Does the early knowledge of others' ideas, completions, and course corrections make up for the distractions? If so, a 'war room' arrangement may work.
On the other hand, mixing people on uncoupled projects, with different deliverables, whose interrupts are irrelevant to each other: distraction disaster.
A lot of things have changed since 1973, but also don't forget that this straw-man argument is being made by someone with a sample size of one. Sometimes when people say "We tried such-and-such and it failed," they are not describing something that always or even usually failed, just that they failed when they tried it once.
Somebody else may have tried it in 1973 and gotten wonderful results. Who knows?