Side A: But if you're in the office while everybody else is in, you can work more efficiently, as everybody else is there to answer your questions.
The benefits of having everyone in the office at the same time is that you can be a more effective team. Engineering is (mostly) a team sport. You have to structure the work environment right so distractions and pointless meetings are minimized otherwise you are setting yourself up for failure. But most important is that you need an environment where the team can work effectively together. For most tasks this requires a non-trivial amount of direct interaction with coworkers. While time shifted teams can work in some cases these are rare and remember that we are talking about a time LONG before the internet was a thing so working separately was far more difficult than it is today. If someone doesn't want to work on an engineering team then either they need to be in a (rare) job where that doesn't matter or they simply aren't going to work out.
Side B: Some of the best engineers I've worked with worked nights. Some of them slept under their desks and rarely showered, but none of the 9-5 people came close to their performance.
That's only helpful if you can do your work without involving anyone else which is extremely unusual. Engineering in most cases is a team activity and it's pretty hard to be an effective team if you have one person (even an extremely talented one) who is never present. In the early days of microprocessor development maybe one guy could do the critical work by himself but that doesn't really work as things get more complex. The long run downside of accommodating prima-donna engineers almost always outweighs the upside of their potential contributions.
Basically, if people perform don't mess with their schedule or their appearance.
My guess is that this guy wouldn't have been able to perform given the team requirements. I don't really care how talented he was, eventually the volume of work will overwhelm even the most talented engineer as the business grows and then he had damn well better be able to play nice with others. Sounds like this guy couldn't.