All a friction modifier does is make the oil more "slippery".

It won't completely eliminate the LSD action, but yes, it does increase the lock up point of the plates slightly to allow reduced noise during cornering.. that being said, my mates Cusco still painted plenty of lines after he put it in!

It's not bad for the diff whatsoever.. diff break-in oils have friction modifiers in them to prevent excess wear during break in caused by the high friction between the plates.

But you have to make the trade off.. do you want it quiet or do you want it to lock up a bit earlier? I don’t think it’s going to be a drastic change either, as mentioned above, the diff still works as intended.

I'd personally try it just to see.. you might even like how the diff works after putting it in, and if you don't, then you can change the oil out next time and go back to the way it was.