Is it OK to hang drywall in a free-standing workshop WITHOUT taping or mudding?
Insulation does not require anything over the top of it to be effective. I'm not sure where you read that, but I don't believe it's true. Obviously you need to stop air movement, but the paper does that.

The usual reason to cover it is for fire protection. If your local code doesn't require that you cover the kraft paper, you don't need to. However, unprotected insulation tends to get damaged very easily in a workshop environment. You will have shredded paper and tufts of fiberglass blowing around. I would consider covering it with OSB, which also serves as a very nice backer for mounting equipment and whatever.