I see the use cases for mute. But I personally don't think I should control who can and cannot comment on my posts so I don't use it.

Exactly this. The muting itself isn't an issue, it's this aspect of the muting that's the issue.

Just implement mute so that the person in question is no longer a part of the persons world within hubski. If the mutee replies, the muter just doesn't see it, and doesn't see any conversation below that threshold.

That would uphold Hubski's idea of 'curating your own experience' without having it negatively impact other users. If someone says something that you consider controversial, but others are interested in the conversation, it's completely unfair for the muter to be able to end that entire conversation for which they've explicitly stated they don't want to be involved in by muting in the first place.

If they don't want to be involved in it, fine. But don't let them stop the discussion.

If you really want to make it social, place a tag-line on the comment. person X muted person Y here. This tells other people that someone found it a mutable offense, and if others join in, let it turn into a list of people who muted said person based upon that particular comment.

Suddenly it becomes a social phenomenon again, and not a systemic enforcement of someone's level of offense. Personally I don't like the idea too much, Hubski is one big popularity contest, and getting muted by someone who is popular is going to cause others to mute, but it also has the chance of allowing people to call others to task for abusing mute too much. It's transparent.