This isnt an unbreakable rule. The main reason to install drivers first is that the device manufacturer knows the drivers did not ship with Windows XP (or whichever OS). You can certainly plug the device in and the world will not implode in a cataclysm of fire. Typically, Windows will complain that it doesnt know what the device is and prompts you to install the drivers. That’s it. This could be an issue if you do not know how to install drivers manually. At worst, you have a yellow exclamation point in your device manager signifying that Windows doesnt know what to do with the device.
Some device installation packages should be installed first, as they maintain drivers and software for multiple devices. So, the installer runs and asks you to connect the device. The installer then detects the device and installs the appropriate drivers/apps.
Needless to say, its best to follow the directions that come with your device as to mitigate any known issues that may arise.
Maybe because plugging it in first might result in some default driver getting installed which lacks the options (bloat?) the recommended driver package offers. This is not only likely to confuse a normal user, it is then going to be extra confusing/difficult to teach him/her how to update the driver to the recommended one (resulting in lots of unnecessary support calls). My guess is prevention of this sort of scenario, instead of any real issues as such, is what makes them recommend installing the drivers first, then simply plugging in the device and have it work properly from the get-go.
The reason this has such a cataclysmic reputation is that Windows 98 and XP would sometimes install a “composite device” driver on anything it didn’t recognize so as to manage interrupts from the unknown device. Unfortunately, that meant that the new hardware wizard wouldn’t get triggered and that the device could not be detected when you tried to follow the installation instructions. You actually had to manually remove the composite device driver before you could install the correct driver. The fact that most drivers are present in new windows distributions helps a lot, and apparently Windows now deletes the “place saver” drivers at boot time if the device isn’t present – it isn’t the traumatic event that it once was. More than that, this deponent sayeth not.