Is the TypeScript team correct in explaining that soundness would exclude functions accepting subtypes as laid out there? If so, it seems like any type system that was meant to be able to type common JavaScript idioms would have to be unsound.
Yes and no - you can't have bi-variant argument types as shown here and be sound, but that does not mean you can't type those idioms. You just need the type system to be able to express a dependency between the name of the event handler and the type of the associated function. It is not exactly straightforward (this is a complex type system feature) though, I don't blame the TS devs for going for an escape hatch there.
(Edit: to be clear, allowing to refine function types in the way they do is part of the solution, the unsound part is that it is not checked afaik)
Sub-types can be represented with algebraic types so I’m not sure that’s necessarily true, for example an abstract class with subclasses can be represented as a sum type
