What is the purpose of using ice cubes in smoothies over frozen fruit?
Yes, it makes it less flavorful. That doesn't necessarily mean it's a bad idea.

Often it'll still be plenty flavorful even with a decent amount of ice in it. So by using ice, you save the trouble of having to freeze some ingredients first, and don't go through your fruit quite as fast. You can avoid having to keep fruit juice on hand.

It also lets you pretty easily control exactly how cold/icy you want the smoothie. 
If you live in a hot area, smoothies with a decent amount of ice are actually pretty nice - they stay cold much longer, and the icy graininess can make them more refreshing.

I'm sure plenty of people would never dream of using ice and some people do all the time; feel free to go on doing whichever suits you! (I'm originally from Texas, and honestly, in addition to blending some ice in, I used to put whole ice cubes in after blending just to make extra sure it stayed cold.)

For a helpful comparison: a lot of really good sorbet recipes use a decent amount of water. For example, David Lebovitz's mango sorbet (from The Perfect Scoop) uses two large mangoes and 2/3 cup of water. Sure, it could use some kind of fruit juice instead, but I promise, it really really tastes like mango, and doesn't taste watered down at all.