Yes, if you keep the soil too moist it can encourage bad fungi, but it can also encourage the good fungi and microbes to out compete the bad. As long as you have good drainage so the roots still get plenty of O2, I don't think it's an issue. With no-till, and living soil, I try to keep it moist since I'm trying to keep the microherd happy and healthy.
And yes, I think letting the soil dry out can make the roots grow faster as they search for water, but I don't think the plants will really grow any better. If I used chemical nutes, I would let the soil dry out more and just add more microbes back. Nothing wrong with chems, but I prefer organics. I think it's less work.