That's a bit extreme. I personally think there are times when it is appropriate to tell instead of show. One case is things that the reader needs to know to understand the story but aren't in themselves important or entertaining. You can also tell and show at the same time for maximum clarity of an important point.
I agree. "Show, don't tell" is an over-quoted mantra, and nothing like some sort of secret to awesome writing. Some situations require telling, and some showing, and a good writer learns to identify which is required.
Also, the assertion that telling passing plot information in dialogue is good writing practice is completely false. There are all sorts of satirical and derogatory terms for such. From a script perspective, it makes sense in many cases because a script-writer has mostly dialogue with which to convey their story. But scripts don't address every aspect of a movie, as a lot is left to the director and cast. In reality, there is an enormous amont of showing in movies that is not present in the script.
Many aspects of the background will not show up in the game in the same format due to the tools available in games as a medium, and if you are strictly writing a design document, you can leave a lot of stuff you would put into a novel out. But not every game is developed in the same way. An indie game and an AAA game with a design team and a huge staff are going to be done differently. Also, original writing and final presentation are different. A great deal may be delivered in dialogue in-game, and text may be translated entirely into visuals in many cases, but that doesn't mean that creating the source text is "wrong".
There are also different levels of immersion in different games. A massive rpg like Mass Effect or Morrowind, and a platformer like Mario or a puzzle game like Zelda are all going to be handled differently, and players will ave different expectations from each.