You need to spell out the two arguments that are in dispute. It is also useful to specify the POV of the two disputants.
A) This disputant is arguing for monistic reductive physicalism. The argument is not even outlined in the discussion. I will try to summarize how this is argued, building off the implications in the OP:
- The principle of parsimony, and the concept of reduction, are central to establishing reality. If one can accomplish reduction to a single substrate, then per parsimony, we should assume just a single substrate to our world.
- Abstractions, such as information, or math concepts, can be treated either as physical items, or as nominal placeholders, simply for computational ease in dealing with the real physical.
- The physical work needed to extract information is a demonstration of the intrinsic physicality of information.
- Monistic reductive physicalism is sufficient to characterize our world, and is the preferred ontology to do so
B) This speaker holds by abstract object realism, as well as material realism. This is a view of pluralism in fundamental properties, and could be either fundamental pluralism, or an emergent pluralism. I will present the triplest argument for this.
- There are three fundamental types of things in the universe, physical things that have location and time properties, experiential things that have time properties, but no location properties, and logical/abstract things which have neither location nor time properties. This is Popperian/Fregean Triplism, and is well summarized by Popper here: https://vdocuments.net/popper-karl-three-worlds.html?page=1
- Information is one of many abstract objects -- it has no location nor time properties.
- To characterize our universe, one needs both physical features, plus also relational/informational characteristics. Ignoring the hard problem of consciousness, just understanding the physical part of our universe requires that one use both world 1, and world 3.
- A pluralist ontology is therefore necessary to characterize our world.
The argument A is seriously flawed.
A1) References multiple NON-physical elements. "Principle", "parsimony", "central", "establishing", "reality", and "assume" -- NONE appear to be physical. "Should" is explicitly an "ought", which is widely held to not be extractable from any "is", even an abstract or conscious "is", much less purely physical "is's".
A2) "Nominal" and "extract" bring in world 2 agency, and treat world 3 objects as "merely" methods for world 2 agents to achieve understanding. there are two problems here i) This "nominal" claim does not appear to be anything more than evasive wordsmithing -- one must use abstractions to understand our universe, and calling abstractions "nominal" rather than "real" real does not change that one must use them, and that they are not physical. ii) This argument also explicitly brings in agency, which runs up against the "hard problem of consciousness", that consciousness is ALSO not reducible to physics.
A3) That one USES physics, to do something, is NOT evidence that the thing one is working with, is physical. A is an argument for a monistic ontology, and it is contrasted with INTERACTIVE pluralist ontologies. Interaction between substrates is possible, and one would expect that interaction to use energy on the physics side. Therefore, that the interaction of physics and information may use energy, does not mean that information is physics.
A4) It is not stated in the question, but is basically assumed that physicalism must be reductive and exclusionary. That is not true. Note that Papineau: https://www.academia.edu/819823/The_Rise_of_Physicalism, Melnyck: https://www.amazon.com/Physicalist-Manifesto-Thoroughly-Materialism-Philosophy/product-reviews/0521827116, and Stoljar: https://www.amazon.com/Physicalism-Problems-Philosophy-Daniel-Stoljar/dp/0415452627/ref=sr_1_1?crid=KWQWHNZ5XN9W&keywords=stoljar+physicalism&qid=1665598689&qu=eyJxc2MiOiIxLjQ4IiwicXNhIjoiMC4wMCIsInFzcCI6IjAuMDAifQ%3D%3D&sprefix=stoljar+physicalism%2Caps%2C4123&sr=8-1&ufe=app_do%3Aamzn1.fos.08f69ac3-fd3d-4b88-bca2-8997e41410bb all agree that physicalism does NOT exclude the existence of non-physical things in our universe. All implicitly or explicitly accept that there can be non-physical emergent phenomena from the physical, OR that abstractions may exist independently of the physical.
I do not believe the problems with argument A can be addressed. Abstract objects appear to be central to dealing with our physical world. The problems with argument A) are the reason that the vast majority of physicalists today are now emergent, non-reductive physicalists.