Any reason why Inkscape's "precision setting" option limits "significant figures" instead of "decimal places"?
Probably because objects and groups can be transformed and the precision would be dependent on the scale.
Placing a limit on "significant figures" forces arbitrarily higher precision for coordinates near the origin of the drawing.
Thus the use of relative coordinates is much better. Albeit it gives higher precision for short segments, however it can be an advantage if the fine details are stored with higher absolute precision than large shapes.
Maybe it would be best to relate the precision not to individual coordinates but to the bounding box of the path.
Precision drops logarithmically (in discrete jumps) as the coordinates move away from the origin.
E.g. Consider the following horizontal path created with a numeric precision of "8". d="M 0.17036585,0 243.56794,0 507.68921,0 801.52616,0 1128.1785,0" Note how the first coordinate has eight decimal places while the last coordinate has four decimal places. The extra precision on the lower valued coordinates leads to necessary file bloat. When a drawing has thousands of points this bloat becomes significant.
It seems to me that it is not so significant. Consider an image 1000 x 1000 units. Then on average, only 9% of coordinates will have 1 extra place and only 1% of them 2 or more extra places. (BTW, the workaround with translating the layer would solve this problem too.)
P.A.