I have no useful facts about the perception of distortion, so I can't make a technical answer.
But I do have opinions and guesses, educated or not(!). I think a small amount of second harmonic distortion makes reproduced music more accessible and engaging. Too much is syrupy and muddy. The optimum amount seems to vary with the genre of music, the loudness you listen at, and your own hearing. Personally, I find that wide dynamics and spectral density (big band, classical symphonic) wants only the slightest touch, while more intimate music (jazz trios, string quartets) can handle more, and it brings the band into your living room.
The perception is largely unconscious, at least in my experience. I don't "hear" it, but if I notice my toes tapping, or I'm distracted from the book I'm reading by some bit of musical magic, that's a clue.
I suspect this is one of the reasons the HD-650 works so well with Crack - it's close to optimum for most people. But as I said, I have no basis in science for this guess.