Considering that DF is a management sim regarding medieval-esque civilization, I think waste management is honestly an incredibly essential part of it.
There should be an init function to disable it, sure, but it shouldn't be ignored. What's an adventure story without a trek through the monster infested city sewers?
I agree with the way Nikov outlined it: it handles the issue nicely, while keeping to a medieval/Roman level of tech, without being overly graphic. "Urist McDwarf was disgusted by filth recently" is no worse nor graphic than "annoyed by flies" or "disgusted by miasma". We don't need to hear about the grody bits anymore than we need long renditions about flies going in orifices or the exact patterns of blood and ruptured organs on the walls.
This is, after all, a fantasy world simulator and the sewers, undercities, etc. of fantasy are a well established trope. Vast sewage labyrinths aren't just the realm of fantasy anyway: major cities like Paris boast huge sewers dating back centuries that rival any dungeon in breadth and scope. As for their importance in a siege, consider the case of Prince John and the castle he lost in France back in the 13th century. Chateau Gaillard was built by Richard I to be an impregnable fortress to guard his holdings in Normandy, but when ol' John took the throne he added a latrine to the Chapel for whatever reason (maybe he had a taste for Indian food before Mass, who knows?). When the French laid siege to the castle, one French soldier found the new tunnel from the latrine to the outside, climbed in with a few others, and opened the gates from within. The castle could have lasted years, plenty long for relief to arrive from England, but John lost his ENTIRE CASTLE due to a poorly thought out sewer system.
That's IRL, not somebody's silly little game fortress. It brought down a castle, which led to a series of defeats that ended with the signing of the Magna Carta, the document which paved the way for civil rights as we know them. Pretty big impact, no?
I like the idea of my dwarves being more fantasy-ey (complete with vaults and a sprawling sewer undercity complete with criminals, banished outcasts, and whatever roaming beasts and monsters make their way in), and the idea of having to prepare for all manner of problems with sieges. Enemies are crafty, and anything that models that further is fine by me.
I also agree with having an INIT option like FITH: YES/NO for those who either find it gross and juvenile, or don't care to deal with dorf potties.