Yes, the magnets cause issues, some are software (as in 4.2.2 firmware) related and some Tech constraints.
1: S-Pen: It uses EMR (electro magnetic resonance) technology and the Gauss Fields/Produced by Magnets in very close proximity cause major issues with pens accuracy. I don't have the original book cover, but an aftermarket one, that also had a closing flap and that also had magnets (that i got rid of) and those did wreck havoc. If you put your back cover behind the tablet and then try to use s-pen over the area that the magnet covers. you might notice some
inaccuracies with s-pen (non straight lines,dead spots, etc ). Though Samsung official cases might have weaker magnets or internal shielding and effect might not be as prominent or noticeable at all, as even with my aftermarket one, the front panel magnet does not seem to affect the s-pen. But the magnet is the closing flap/latch do affect.
Could this cause permanent damage : In long time storage with cover on perhaps it can, if some metallic component inherits some magnetism. Very Unlikely for an average user but still possible. Not worth getting paranoid about a bit.
Here is more info on Wacom Tech :
http://www.wacom-components.com/english/technology/emr.html
Note: Samsung might even have a warning somewhere about the magnetic
aftermarket covers.
2> In Current 4.2.2 Firmware(CSC : OXA/Germany). The Alarm refuses to sound with the magnetic cover on. Magnetic cover forcing the screen close, for whatever reason is also forcing that alarm to not sound. I as well as other user have had this issue. (this is more of a software issue, but an issue nevertheless.)
Both of the above issues I have experienced first hand and I could care less if they are myth or not, fact is that they caused problems for me, and few other users.
I still use that cover and it still causes the auto wake/locking,But I am cautious how I use it and needed to rip out some magnets out of it.
Hope these provide enough of facts for you.
(Note: I am implying issues and not damage and mainly so with aftermarket stuff )