With all due respect, if you are offering advice on this, how many have you filled out that had a red flag? I presume you only applied to residency and fellowship once if you're giving advice on how to do it properly. If you had a red flag, or if you've been really active in reviewing residency apps, I assume you'd realize there are spaces other than the PS to address red flags (even if they weren't there when you filled out ERAS).
As someone who has filled it out with a red flag, I agree that using the PS to explain a red flag wastes space in which one should be selling him/herself to offer info that is redundant and available elsewhere in the application packet. I take offense in the fact that you're unprofessionally calling the other med student who has said this ******ed and calling his advice stupid, because it is the same advice I have received from my advisers at a well regarded medical school that does very well when it comes to matching us into competitive residencies. It is advice that I took, and that thus far seems to be serving me well in the application process.
I have a "red flag" due to a severe, non-psychiatric medical condition that was repeatedly mis-diagnosed as "in my head" and "depression" while I was in medical school. It is something that is now completely resolved. I did not mention this in my ERAS personal statement at all, because there are two other locations in which it is more appropriately addressed -- there is a check box that opens a space to discuss disruptions to your academic progress, and there is the MSPE written by your school. I have received interview invitations to more than 2/3 of the programs I applied to, including some that are extremely competitive. I received my invitations early I the cycle and do not fear that they were reticent to offer me the interviews or that I am at the bottom of their pile. I cannot speak for the <1/3 of programs that have not invited me to interview (only 2 outright rejections to date), but all of the others had clearly taken the info in those 2 other portions of my application to heart and many have brushed off discussing it in interviews, saying "if we were concerned and did not feel it was adequately explained, we would not have invited you for interview or would have asked about it."
To me, the hurdle that the OP has that I did not is that s/he is dealing with a psychiatric condition. Physical medical conditions do not have the same stigma as psychiatric, so I was able to allow my dean to disclose my condition in the MSPE -- something along the lines of "Plecopotamus was non-promotable due to XYZ, which he has given me permission to disclose was the direct result of a major medical illness, which unfortunately had delayed diagnosis and treatment. Since surgical intervention, Plecopotamus has had no further academic difficulties due to his condition and has performed (remaining blah blah blah that you normally find in the MSPE)". I was able to reiterate this in the paragraph on academic disruption and emphasized that my condition was treated and wouldn't compromise my ability to succeed or participate in residency.
Technically, the OP can refer to his/her illness vaguely as a "medical condition" and not be lying. However, the stigma of psych diagnoses is specifically why I gave my dean permission to fully disclose the nature of my illness -- I think unspecified "medical illness" tends to be interpreted as "psychiatric disorder" or "inability to handle stress." And I do not know that it would be honest for the OP to report his condition as resolved without risk to success in residency.