I kinda see where GM is going, and see why he doesn't agree with Iserth's framing of the argument because Iserth is really just looking for a way to show that he was right all along.
The way I run it, if the Orc successfully intimidates, the character is afraid. I tell the player, in various forms of stage dressing, that his character is afraid of the orc. So, in that sense, it's a response. However, that input is a stimulus to the player, who then decides how his character reacts to the fear -- swallowing it, because they'll be damned if they'll let an orc see them afraid; popping off because they react to fear in a violent and negative manner; acquiescing because they decide the scary orc should be left alone; whatever. I see this as not restricting player agency because no course of action is taken away from the player -- he/she still makes the choice as to what their character does. But it puts the characters in their proper place (as I see it) as part of a game world that acts on them as they act on it.
To me, it's perfectly fine to have the character be influenced in any number of ways. It's the player's job to take that stimulus (if you will) and choose a response. GM may or may not agree with this, but it seems consistent.