The embodiment debate asks whether intelligence can be complete without a physical presence in the world. The case for needing one is that concepts like heavy, hot, sooner and broken are learned through interaction, not description, and that a system with no consequences never learns what a consequence is.
The case against
Much intellectual work is symbolic. Mathematics, law, strategy and software do not require hands. A system that can read, reason, write and use tools can accomplish an enormous amount without a body, and most commercial value sits there.
The middle position
Embodiment is not binary. A system with tools, sensors and the ability to run experiments has partial grounding. A system confined to a chat window has very little. The question is how much of the world the system can affect and observe, not whether it has legs.
What this means for AGI
An AGI without a body could be extraordinarily capable and still systematically wrong about the physical world. Robotics is one route to grounding, simulation is another, and neither is currently a solved problem.