The growth thing isn't completely a myth. Many animals do produce chemicals that can stunt growth and these chemicals will build up in smaller tanks. You can remove them with water changes and some types of filter media. Poor water quality can also stunt growth, of course, but that's not the same thing.
Either way, it's never really good for the animal to be stunted but I don't think that's happening with Squishy because I know you do water changes
. You see stunting in tanks that are poorly maintained in addition to being smaller.