On a non-naked short those 10 shorted shares ARE out diluting the market "until" they are bough back and returned to the lender.
So during the short period ther ARE still 110 shares out diluting the market cap. Now I used a very simple example of only 10% of a stock being "legally" shorted....
Carry it further to 20%, 30% or more on a fairly continuous basis and see what effect it has on the dilution of the market cap and the adverse effect of the good investors and the company.
I haven't said anything in this thread about naked shorting a stock.