I'm on a job search, and Replit is one of the places I was going to apply, off of their listings on HN Who is Hiring?. So much for that, and I suspect a lot of devs are going to feel the same. (I don't think I'm good enough to get in, but there're a lot of really good devs who read HN who are.) In a seller's market for developers, this could hurt them in the form of less good talent applying.
That said, my gut feeling as an outsider is that they feel genuinely burnt by a former employee making something similar to their product. Not just cynically trying to smash the competition. Not that that justifies anything—everyone thinks they're the good guy (well, almost everyone).