Not all apps can be silenced even when you are in mute mode. It depends on the sound setting of your phone too.
I agree that mute switch has less use if you compared to volume button, power button, and home button. But it's still a convenience you would rather have than lose. I don't believe that there is no space available to squeeze the mute switch, Apple can always make the switch smaller. Not that this is a dealbreaker for me buying iPad Air 2 but that there is a switch is always better than there is not.