I don't think he presented it as cut and dried as you infer. According to his own account, he refused the second set of notes, not the first, and there was clearly some discussion about it.
If the client's new demands threaten to damage the project irreparably, I can understand any craftsman's desire to distance himself from it. Sometimes "Yes, but..." isn't enough. Sometimes you need to say, "This is so unfeasible that I'd rather not take any responsibility for it." Hence my ridiculous example of a papier mache watch. Even though you're giving the client exactly what he wants, the end result makes you look incompetent. You're the clockmaker, not him. You should have known better.
Granted, there's more objectivity involved in writing an entertaining screenplay than making a functioning clock, but either way, the client is totally free to do what the producers of Battlefield Earth did: ignore the craftsman's advice and let their own vision lead them to colossal failure.