As others have mentioned, the distinction between "hardware" and "software" isn't clear because modern cameras are specialized computers. Most cameras have multiple toy modes, and some cameras have in-camera raw processing, along with other editing capabilities.
Restrictions to limit photography to in-camera processes might have originated as a guideline for documentary photographers to reduce the temptation to edit their photos. For some, it's a point of pride to get it "right" in camera. For others, it's a time saver to not have to post-process.
As others have mentioned, the distinction between "hardware" and "software" isn't clear because modern cameras are specialized computers. Most cameras have multiple toy modes, and some cameras have in-camera raw processing, along with other editing capabilities.
mattdm speculates: "Differences from human perception which are due to limitations of the medium are generally more accepted than intentional alteration free from that." The dichotomy is natural vs unnatural, in and for a particular medium, not hardware vs software.
You can do whatever you want and call it art. You don't even need a camera. Whether other people agree with your "artistic" tastes is a separate issue.
When people are concerned more about a technique than they are about whatever effect an artist intended, that piece has failed as art. HDR toning is so glaringly obvious that it draws attention to itself before anything else can be considered, causing the image in which it was used to fail as art.
Where did this requirement come from? Is it no longer art if the image is "changed drastically"? Regardless, HDR toning does change the image drastically. Every pixel is modified in the process.