Interesting... I haven't heard of this being done by luthiers. I might give it a try, although I must say I do quite like to see the grain of the wood. Even when I french polish, I don't normally fill the grain, unless specifically asked to.
You won't lose any grain using this technique, you'll simply fill any open pores with a fillter that is the same color as the wood, since it is made from the sawdust of said wood. It will not affect the look of the woodgrain at all.
And yes, jebejava, I am of course familiar with Tru-oil. I built a little flintlock pistol a year or so ago with a walnut stock. I filled the pores using wet-sanding with Formby's Tung Oil Finish thinned down with mineral spirits (4 parts MS to 1 part TO). Once that was done, I hand-rubbed about 6 coats of Tru-oil on top of the tung oil. Turned out very nice.
If done properly, Tru-oil can be made to look like a very glossy, sprayed-on urethane or varnish. Tung oil will work nicely for a more satin, less shiny finish. I think both would work great as a guitar finish, depending on what you want to end up with.