Traction control works really well for when you're riding on some freshly wet asphalt and you hit one of those slick spots where the rear wheel breaks traction and begins to spin a little for a millisecond, causing the rear of the bike to start to drift. Traction control reduces power to the rear wheel momentarily until it matches speed with the front wheel to keep the bike from drifting, and it does it faster than you can react, until you get past that brief slick area. The key there is "momentarily". Most hardcore dirt riders would tell you that the ability to be able to keep the rear wheel moving and providing power when on soft terrain is pretty crucial to controlling the bike. If you're trying to muscle a bike around tight turns in soft dirt, the last thing I think you'd want is for the bike's TCS to constantly be cutting power to the rear wheel. Same with a water crossing; continuous forward momentum is your friend, and losing that momentum for that split second when the rear tire hits a slippery rock and the TCS cuts in could mean disaster. The same thing goes for riding in mud. If you're in mud, all the TCS is going to do is keep reducing power to the rear wheel, right up until you stop moving forward because the TCS is trying to match the speed of the rear wheel to the front.
My experience with this phenomena was getting stuck in a deep sandy road in South Carolina and forgetting to turn off the TCS before I got on the road (the deep sand happened all of a sudden on an otherwise fairly decent dirt road). As the front tire slowed down because I was plowing sand and the rear wheel started to spin, the the TCS sensed the speed difference between the wheels and began to slow the rear wheel, right up until the point I stopped dead in really deep sand. At that point you're screwed because you really are stuck, and even when you shut the TCS off, you're still stuck. If I could have kept the rear wheel going and, most importantly, kept my speed up, I may have made it through that deep sand (though with my deep-sand skills, I still might have flubbed it).
Traction control is kind of a misnomer, since it implies that it's doing something to increase traction, but it really isn't. It's simply modulating the power to the rear so the bike can cope with a situation where traction is suddenly and briefly reduced. It's come in handy for me on slick wet asphalt, but it's been a giant boil on my ass when I was in soft stuff off pavement.
I say all this as a guy who is most assuredly not a hardcore off-road dirt rider, so it's always possible I'm wrong.