I have heard of this method before, but i think you may be mistaken in that it avoids the need for cropping, when offsetting the sensor would essentially create an incamera cropping through vignetting. Also, wouldnt the circle of confusion remained fixed, causing a good portion of the image to become blurry?

I will answer this in two parts:
1. Vignetting - this is the darkening of the edges of the frame... essentially due to less of the lens capturing light for that part of the image (basically). You would have to move the sensor a lot for this to actually be perceivable. Think of it as basically the same as what you would do if cropping in photoshop. Remember that if you move the sensor to the right by 3 of the sensors pixel widths, all the pixels will be the same, but there will be 3 less on the left, and 3 more on the right.
2. Circle of Confusion - the blurring caused by not all the rays from a spot being focused on the point on a sensor (well, that's basically it). This will remain the same as it was with the sensor in the original position. While the CoC will become greater the further from the center of the lens, we are only talking about moving the sensor maybe 10% of the sensors width. ie. not very far. The actual effect will be minimal and all the rest of the pixels that you would have used if using the post processing cropping will still be the same as they would have been.

I would be more concerned with chromatic aberration as the further you move from the center of the lens, the more you get. Colour separation is more noticeable then a little blur.

Let me know if you disagree.