I read the first 10 or so posts, skimmed the rest of the first page, then made this post... don't judge me.
I think that this idea has valid backing - I don't know HOW
McMuffin55 found my only 2 days old town of Docktown, but he not only found it he showed up WHILE I WAS THERE (and how would he know this, eh?) for the sole purpose of making his demands against my faction. He didn't send a mail "Hey, when you're available next can you meet me in Regalia?", no, he showed up at my town that, by all forms of logic, very few people should have known about. I traveled by boat most of the way, so no tracks, and I only told my faction about it, so no way for him to know (trust me, not one member of my faction would talk to him). So how did he get there? By using the magical skymap of course. Even though he's a pirate, and shouldn't be welcome in Regalia. Logic!
However, the people against it have equal backing - I don't want to count the number of people who settled too close to another faction while the dynmap wasn't able to show them. So if they could 'hide' on the dynmap they would face that same problem of people too close to their base. So unless the base limits are removed the dynmap has to show faction locations. But naturally, there is no valid lore behind this, and I guilty myself of using this to locate factions I needed to get to for... various reasons.
There really isn't a workable solution, in all honesty, because of the fact that people NEED to be able to find other factions and thus not claim too close to them. However, so long as the ability to see where factions are located instantly is on the dynmap, there will be people who can't roleplay and just want to kill who abuse this ability for their own destructive purposes. It's not logically possible to stop them, but you can't cripple the server by removing factions from the map. No solution is possible.