I've seen one or two of them. The big problem with them is once you've seen one in action, the setting is pretty much ruined for you for all time. Just looking at the setting, all the novels and all the canon, you can see the seeds where these people sprout from. For most of its 2E and
3E lifespan, the Forgotten Realms through sourcebooks and novels provided a metric ton of what some people refer to as "continuity porn". This lends credence to the stories of these canon lawyers. Most of us are geeks, enough to have witnessed Star Wars/Star Trek fanatics arguing over minutiae at some point in our lives, so the feeling is familiar. There is also a lesser evil with this, and that is that the canon lawyer, even if he's not ruining the game for other people overtly, can dominate or steal the spotlight in other ways. I saw this when I was running the Dragonlance modules, where the one player I had who read the books was catching the little setting details and appreciating them where everybody else just walked on by. Combining this with her greater knowledge of Dragonlance geography and history kind of made her the center of the game regardless of her own behavior.
Canon lawyers aren't the only problem with
FR. Just as big of a problem were Mary Sue DMs. These tended not to be canon lawyers but novel fanboys, who tend to insert their favorite novel characters into their campaigns as intolerable Mary Sues.