It does not defeat the purpose as your MFA code/prompt as you are still protected even if someone has your password. The only slightly lesser protection is that if someone gains local access to your machine/password manager then everything is compromised vs. having your codes on your phone, but this should be very, very far down the list of security concerns for the majority of people.
The most realistic security threat for OTP's is that they can be phished in a few ways which is the same problem if you're using MFA stored on your desktop or phone. Hence the preference for physical security keys / passkeys which are impossible to phish.
