I wouldn't go so far as to call it 'dumb'.
I am pretty sure it is "dumb." The whole point of playing the Fate system is to use Fate Points. It is right there in the name. But this house rule makes it disadvantageous to use fate points (for the most part).
It takes away the whole reason to play a Fate system game. Ergo: dumb house rule.
It is like playing Exalted without motes of essence.
Or D&D4e without powers, action points, miniatures, and a grid (and "No, I don't want to hear about someone's '1337' home group does without any or all of those things").
Or Bang! without the Sheriff's Badge (okay, the badge isn't necessary but it is hilarious to see a grown man wearing a plastic sheriff's badge).
Taking away the core mechanic (which this does by making fate points so tactically bad it is pointless) just raises the question of "why use this game for this setting."
There are other systems that can be used for a DF style game.
Without fate points, Average (and sometimes Fair) skills are useless to the point of not righting them down (unless they give static bonuses, like an extra stress box).