Unity 2023.2.5
Still not fixed

And where is such option in Unity 2022?
The Power of Unity was its intuitive user-experience without any annoying export/import workflows!
Of course I know how to export to FBX, but it stinks...

Why is this not being made an option? This completely broke all of the animations in an old project I attempted to bring into 2020, so the default behavior has changed. We're supposed to dig into the exporter source code every time we do a version update?

The "Won't fix" label just hurts in this context.
Unity should know better that blender is a widely adopted tool for animators and modellers,
and while it provides way to directly use blend files it doesnt allow for 1-1 export or even doesn't add a way to easily change the importer behaviour.
Looks like very unprofessional behaviour.

This issue has caused a significant headache for me - the suggested workarounds are not suitable (exporting to FBX leads to difficult-to-modify animations later on - therefore requiring both FBX and .blend files for every model. Editing the .py file directly would break other projects using the same version of unity). Why is a checkbox on the import settings not being considered?

I really don't like that unity just went with breaking user expectations and work to fix a single usecase they might have had.
For anyone else struggling with this breakage, i made a plugin (project settings provider) that allows fixing this/adjusting the importer settings from within unity to the desired way of importing clips from .blend files: https://github.com/Flavelius/unityblenderanimsettingsprovider
I wish unity provided a built-in way of adjusting this, but while the won't this plugin should to the trick as a workaround

And they still haven't changed it back or added a checkbox to the Import Settings, it's unbelievable how out of touch they are with the user base and how they use the software.

Just been stung by this. I do not understand the basis for the "won't fix" status.

This is a very important issue and I can't believe Unity is burning their blender using user base in such a way. This really needs to be restored to the original functionality. And here's a couple reasons why:

1) No Ambiguity - Having the blend file directly in the Unity project removes any ambiguity that might exist if there was a FBX file created from a blend file. It might be hard or even impossible to tell which blend file the FBX was created from. Having the blend file in the project ensures that you have the exact file you are looking for.

2) Ability to make adjustments to file without having to reimport the entire file and updating any dependencies - For example, say I have a prefab that uses a humanoid model I created in blender but had to import as an fbx. When I imported the fbx, it takes me about 20 minutes to configure the settings for each animation (transform baking, events, etc). After importing and creating a prefab, I discover my model has duplicate geometry. Now, instead of just being able to directly open the blend file and making the fix, I must find the original blend file, make the changes, re-export as fbx, and then once again have to configure the entire fbx file import settings from the beginning. And that's assuming I have the original blend file. If not, I would have to create a new blend file, import the fbx, make the changes, then export as fbx and then reimport the fbx into Unity starting from scratch again. AND THEN I would have to find any dependencies that uses the original fbx which no longer exists because I've now just replaced it with an updated version, then then fix those dependencies (prefabs, animator controllers, etc etc etc)

3) Backup consolidation - Having the blend file directly in the project ensures that you have the most recent version of it.

These are 3 VERY IMPORTANT REASONS to restore the original functionality (which worked fine! I don't know why you changed it! Did autodesk put you up to this???) Please Please Please, on behalf of myself and all blender users, fix this issue.

If this is not going to be fixed it would be better to remove the ability to import animations from .blend files or add a warning message. I wasted hours because of this.