I won’t be shocked if it turns out Sven is a bad manager, but I do wonder if the backlash is in part because Larian was perceived to be some kind of gaming paradise when if fact it was just a gaming company, with all the associated good work practices and management decisions that entails.
Treating this separately, I think the issue is that Swen (not Sven, but I assume that's autocorrect's devilish hand at work) has promoted Larian specifically on that basis!
You seem to be writing here as if people had merely assumed Larian were a "gaming paradise" (whatever that means - presumably you actually mean "worker's paradise"?) because they made a good game. But that's not the case. People believed that because it's what Swen said!
He has often talked about how great a place to work Larian is, and has promoted worker rights in general as a concept, and complained about the poor treatment of workers in the games industry. He has consciously and intentionally associated good work practices with Larian as a brand. For example, he specifically talked about how, with most games companies (and this is true, certainly in the AAA space), they hire up a bunch of people (not as contractors, but full employees), then fire 30-60% of them when a project ends, or worse, at some point during a project, which is quite a destructive cycle, and made a point about how Larian doesn't and won't do this (which seems to be true - we haven't seen significant layoffs at Larian post-BG3). He's also talked about avoiding crunch and other worker issues.
So the reaction to his company having bad worker issues like these here will naturally be worse than one where it's well-known that they're awful, like EA (a publisher so not a 1:1 comparison, but you know what I mean). It's always worse to see a company that claims to be doing things the right way doing bad things, isn't it?
The one thing I will say re: hiring - not anything else - is that if you are reluctant to fire people, you need to be very careful about hiring, which might explain
some of the ludicrous and I would say, exploitative, practices Larian has apparently engaged in re: hiring.
But stuff like "We can't* fire this nazi, we need him to finish the game!!!" puts a very different colour to his frequent "I'm so pro-employee!!!" claims (again, these are public claims he's made repeatedly, and he's even attacked other companies over bad treatment of staff), and that he let multiple of these guys just hang out and keep acting poorly even after being informed does not reflect well on Larian or Swen particularly.
And sadly, I would say it's kind of easy to believe given Swen's attitudes generally, and his propensity to take rather strange stances.
* = (and there's no way that's true either, to be clear - this is a game with 400 people working on it, literally none of them are that important or impossible to replace, including Swen himself, so if Swen said that, he was being irrational.)