I am not understanding the "worst piece of design ever" part.
You need a "source of one truth" for any sort of music system/service. Spotify, Google Music, Apple Music, etc. all operate under the same principle.
with iCloud Music Library turned off, iTunes ends up being that one source of truth. Thus any playlist changes and such you make get synced between the two.
with iCloud Music Library turned on, iCloud is the one source of truth.. so to sync yes, it has to be a part of iCloud.
Putting a system in place where multiple controls all hold independent control over your library (which by nature is singular) would be a mess. A mess you in particular may be willing to work within/around.. but for the average user, almost certainly problematic and confusing.
I don't get the confusion. iCloud Library turned on? Music has to exist in iCloud. Turned off? Music has to exist in iTunes. Seems plainly simple.