What's important to remember is that there's nothing inherently good or bad about the 'stock' game. For instance, Valve set the max scattergun damage to 105 and the max rocket damage to 112. There's nothing inherently good or special about these values - there's no particular reason why the game would be significantly worse if rockets did only 111 damage at max, or scattergun did 106 (other than the effect of the tiny nerf/buff this would create). Just because this is the ‘stock’ level Valve set the game at, doesn’t mean it’s necessarily good or balanced.
The question you have to ask then is not "is IB better than stock?" (it is) but "is the current level of demo power (with IB) balanced?". If you think demo is generally overpowered, then it may make sense to favour nerfing the IB. If not, simply the fact that IB is better than stock doesn't necessarily mean it requires a nerf. Indeed, if you don’t think demo is overpowered currently, you could just as easily argue to increase the hitbox of stock to make the two comparable.
Personally, I think the meta is fine as it is. This year we’ve already had a push to plugin our way out of medics running at scout speed, largely based on the idea that scout, not demo, is too strong in the current meta. I think the current meta is fine; but if there is a problem, it's certainly not demo. In fact, good IB pipe aim is currently one of the most important counters to the massive power of a beam pocket scout.
Whether it’s a direct upgrade is irrelevant. We allow many direct upgrades (we’ve just unbanned the overdose!). They are a problem not when they make the class more powerful, but when they make it unfairly or unskilfully powerful. Even if it is somewhat easier to use than stock, the IB is hardly an unskilful weapon to use. And the medium-range direct pipes that it facilitates are a key part of why demo is needed in the current meta, to be the best counter to a heal hungry beam scout.