I don't think he meant 3-5 people working in a space the size of a one person office. If that is what he meant, you are right. Otherwise, if the space is big as 5 small offices, it does not sound bad.
You may be right. One of the companies I used to work for was cheap enough to try a stunt like that, so I'm a bit biased when I hear people talking about putting 3-5 people in one room.
I agree. Even with my nice sound isolating earbuds (Shure), it doesn't block out all the external sounds unless I set the volume higher than I would like.
While playing music on headphones can help block out conversations, it is still a distraction. It's just not as annoying as hearing other people talk.
And they've never invented (to my knowledge) smell-canceling headphones.
I've worked in places where it was an issue. And it's a very difficult one to address. "Please be quieter" is much more socially acceptable than "Please use deodorant".
For me it depends entirely on the type of conversation.
I don't mind if it's done at moderate volume and is relevant to the work at hand. Indeed, I like those kinds of conversation to happen around me; the ambient information lets me have a better feel for how the project is going.
It's only when it's irrelevant or loud that I'd want headphones. So we just kick that kind of conversation out of the team room.