When Battle.net authenticators were introduced, the primary threat was keyloggers and leaked passwords (from reuse). Both of those threats are eliminated by TOTP, wherever it is.
But this discussion was more about if the machine was stolen and the bad guys logged in to your online accounts from it.
In that case it is true they would have your OTP, but they shouldn't have your Blizzard password.
Passwords (on the OS account and on the Blizzard account) mitigate against the machine being stolen.
OTP mitigates against the password being stolen.
It is what you know and what you have so that if someone gets one they don't automatically get the other.
When both the password and the TOTP seed are on the same machine - assuming you autogenerated your password - they are both autogenerated and out of your sight so they really are just two things you have, and you have them in the same place. The difference is, it's impossible to capture the TOTP seed from the TOTP token being input - passwords are vulnerable to that.
Am I crazy or does that make the password completely redundant?
If your password database is not encrypted with a strong passphrase, then you are right, they both become "what you have".
The convention is that the chances of two devices getting stolen together are smaller. That's why offsite backups are a thing.