The confusion here is that trad IRAs can be pretax or posttax dollars.

This rule only matters if you have pretax dollars in an IRA that you want to also use posttax dollars to backdoor.

To be clear, it wouldn't be taxed at 90% in this example. It's that 90% of the conversion amount would be taxed as ordinary income.

AFAICT there's no extra paying taxes here or anything. Your pretaxed dollars are being taxed, instead of posttax dollars not being taxed.

If you roll a 401k into an IRA, those will be pretax dollars in the IRA. It doesn't take a very big rollover to completely swamp the tax benefits of a 7k annual Roth contribution limit.