Also, only really works if they are "attempting to gain a higher moral authority" (as OP says). As if that's the only reason people would argue a point. I think it says something about OP that they take that as a given for arguments. I can immediately imagine scenarios that one can argue against a thing that they themselves participate in.

"Hey, smoking is bad, kid. Don't do it."

"But you smoke! And I look so cool with a cigarette!"

"Yeah, it's a habit that's very difficult to break and it makes your life worse in every way. I know from experience."

"No you."

But I agree with your main point,

But pointing out the hypocrisy is technically “off topic” if you’re arguing whether X is actually bad.

It's considered a fallacy exactly for this reason. When you're debating a thing, you're way off the map if you think that's your winning move if you're arguing in good faith. An argument should be about showing your point is correct, not that you're better than the other person. But Mr. Wang up there may only view arguments as a competition to be won morally.

Yes the argument I’m making is about if it is appropriate for the person to be arguing in the first place without considering their own hypocrisy, not whether x is actually bad so I see what you mean about it being off topic. It’s like them saying everyone leaves their shopping cart in the parking lot and it’s bad but when I do it it’s ok, their point about it being ok when they do it is irrelevant, it’s still bad.

It's considered a formal fallacy.

you're probably right to discount their arguments

You cannot square these two statements. If it's a fallacy then you are not justified in discounting their argument. They may be a hypocrite, but it doesn't mean that their argument isn't both valid and sound. The smoking example by the other reply is a great example.