I must have come from a different 'era' TKD school. In the lower belts (white, yellow, green, blue) we did light contact sparring. In the upper belts (red, brown, black) we put on the chest protectors and head gear and basically did full contact sparring. I remember I got KO'd in class before. It wasn't uncommon to have 1 or 2 per week to really get their bell rung. We also did the point sparring stuff, but our instructor wanted to make sure we could hit and take a hit "for real" if the need ever arose. However, the only thing that bothered me was that we weren't allowed to punch to the face/head.
I have seen several of the McDojo's out there, and yes, their sparring classes are laughable to say the least.
As with any style, if you get the right instructor - the possibilities are endless. If you get the wrong instructor, it is just pointless.