YES
I think this feature is crucial for Steem to grow and attract more serious content creators.
It would be nice in addition to the feature already mentioned if users could access a settings option that would allow them to turn author moderations off. Aka shows a "vanilla version" of Steem. Users could also be informed of the existence of this setting when they first click the new "reveal all button".
The point here is that authors should be able to control the default view that an outsider without a Steem account will get when they visit their blog. However, Steemians who are logged in and want to judge content and see what they want should be able to do so without needing to look for a "reveal comments" option all the time.
Finally. With hardfork 21 hopefully making downvotes more popular and accepted, it would be great if steemit also had a "filter comments by controversy" option similar to reddit. This would make it even easier for users to look also for comments that may have been fairly or unfairly downvoted/muted.
Concerning the downvotes I think a committee of elected users with some delegated Steem power from Steemit, Inc. might help, which could decide (in case someone complains) if flags are justified or not, and if "yes" just counter them with upvotes.
In addition, accounts who repeatedly misuse flags in an abusive way (instead using them against spam, plagiarism etc.) could be flagged, as well, after a decision of that committee.