It's irrelevant in practice, mostly because log(n) is very small for essentially all values of n, so one could consider it "close enough to constant". Close enough in the sense that a reasonably small constant (like "64") bounds any value of it you could possibly encounter in a sorting algorithm. But that's true of many things in big-O analysis.

If your temporary space was used by some indices represented as unary-encoded integers (which take O(n) space), it'd suddenly be harder to ignore the indices, because O(n) is not "very small" for many commonly encountered sizes of n. So I don't think taking the temporary space used by indexing into account is conceptually wrong, it just happens not to matter here because log(n) factors often don't matter.

In practice, though, it makes sense in this case to assume integers representing array indices are constant-space and arithmetic on them takes constant time. The computers we're running these algorithms on use base 2 and the size of integer they can operate on in a single operation has scaled nicely with the amount of storage they have access to.