Why shouldn't a pre-hashed password be used with CREATE LOGIN all the time?
The hashing method is presumably an implementation detail which may or may not change in future releases (as it has at least once already). They're telling you not to do it in order to absolve themselves of breaking your scripts/automation if you try to run them on newer or older releases. It's partially supported purely to allow for migrating logins.

At some point in the process, you would have to use the clear-text password to generate the hashed password, so I'm not sure you'd really gain much by supplying pre-hashed passwords.