Speaking from my experience as a trader from Localbitcoins, the main reason is probably because it is intrinsically difficult for the support to solve any dispute. The problem with gift card is that the seller could give the trader an used gift card and try to pass it off as legitimate. Due to the structure of the various sites, it is not possible for the gift card to be tracked and thus it is difficult to see who is telling the truth. It's more likely due to the hassle of managing such issues rather than its legitimacy. I've bought tons of gift card from there for personal use and I've never experienced any problems after redeeming them.
It's a good decision taken by LBC, and I pretty much agree with the reason you said.
I also would like to see some actions from LBC about the KYC thing that some traders ask on top of the verified LBC account one have, who is trying to deal with the trader.
Once I had a problem with one Neteller trader, and he asked my passport or ID for verification and I didn't give him as I don't trust anyone with my personal docs.
Later we didn't make any trade, but the trader left a negative rating on my profile saying that I didn't provide ID for verification.
Why do buyers need to provide personal docs to some unknown person while the buyers who already have a verified account on LBC? In my opinion it's totally unnecessary and I think LBC need to put some changes on their terms.