It wasn’t deemed unbalanced in gen 3 and 4 as far as I know. One might argue that the combination of player preview and trapping is the problem, whereas I think that the unknown presence of a trapper only increases its power.
Is it good? Yes. Is it uncompetitive? Hell no. Trapping abilities are not inherently uncompetitive since they are still unbanned in older gens, and magnezone is a trapper that never got banned in the first place even though it traps (albeit a smaller pokemon pool, we are dealing with trapping as an uncompetitive ability) in the same fashion.
So yea, don’t ban dugtrio since arena trap is not uncompetitive and it actually helps the meta dealing with offensive threats and stallbreakers.
In trying to counter argue you've hit the nail on the head perfectly here.
Widespread trapping (i.e. not Magnet Pull) has been uncompetitive in every generation since team preview has existed. The reasoning for this is obvious - when you have a trapping Pokemon, team preview basically lays out your entire gameplan for you. I could lay out a hundred examples of this across gens 5-8 but long story short, team preview tells you 1) what you can trap and 2) how your opponent could take advantage of Dugtrio after a trap. This introduces wayyyyy too many, overly straight-forward, team match-uppy situations like "if I use Dugtrio to trap Cinderace, and keep my Sylveon healthy enough not to be counterswept by the following Dragapult, I win".
There are so many ways to tailor your team to use Dugtrio to manufacture win conditions that your opponent can't reasonably prepare for without slapping Shed Shell everywhere. I'm talking things like random U-turn mons + Dugtrio, SubProtect Dugtrio + TSpikes/Toxic which can remove Seismitoad, the niche Trick Iron Ball + Dugtrio which can even remove some Corviknight variants - you can't feasibly prepare for all this stuff, but Team Preview gives the user a ridiculous amount of information to lay out their game plan and because of Arena Trap, once the plan is in motion, you're helpless. I'm sure smarter people than I will work out some more absurd ways to autowin certain match-ups with niche Dugtrio set-ups. I'm not saying it takes zero skill to pull off, but it shifts a disproportionate amount of skill into the teambuilding stage, and away from the actual battle which is often a foregone conclusion.
Dugtrio isn't anywhere near as oppressive in ADV or DPP because you have to earn all the information you get. If my gameplan is to sweep with some offensive Electric-type in DPP, I have to dance around the first 15 turns of the game to firstly work out if my opponent has Tyranitar/Blissey/SDef Heatran, and then get in Dugtrio safely on Tyranitar later in the game. If I'm using Focus Sash Dugtrio, I have to keep hazards off the field in the generation where it is probably easiest to spinblock - no Defog, no Magic Bounce, and you're up against Ghost-type Rotom. Even then, I have to work out if my opponent has something like DD Gyarados or DD Dragonite that can use Dugtrio as set-up fodder and potentially sweep me - that information isn't handed to me. All the while, my opponent is going about their own gameplan, effectively winning 6v5 because I can't bring Dugtrio in whatsover until I know if there's a Tyranitar/Blissey/SDef Heatran on the opposing side. This means that playing with a trapper in early gens, particularly DPP, means you have to start "hot" so that you can get as much information as you can, early as you can, without losing so many resources that you've lost even when you successfully trap.
I'm strongly of the opinion that Dugtrio is busted with Team Preview, I've been saying it since 2012 lol (https://www.smogon.com/forums/threads/trapping-in-bw2.3473523/)