Lets say you want to move on the x/y axis with a gamepad.
You are facing towards y, an obstacle is infront of you, you need to go towards y then continue to x. Changing directions with standard controls is not like 100% towards Y then 100% towards X. Your input will be an diagonal one sometimes as you need to change the direction and you don't stop your movement from y to x with a gamepad. What you do is, you rotate the stick from y towards x. And exactly that leads to a decrease in speed compared to keyboard user who have an almost instant input(because they could just press e.g. W and then A/D - if they press W and A together it would be slower) because they can be more precise. Once the direction change has been completed, you perform the same line movement as anybody else, it will be the same speed again. But I think OP is highlighting that directionchange and calls it an "arc" when X and Y movements are done the simultanously(it can be almost flawless if the camera positioning is good).

It is usually not an issue because usually you have enough time to do any mechanic. I've only learnt about it because some people can strafe extremely fast around walls with a keyboard in PvP. It almost looks like speedhacking, but they are just better than other keyboard user and naturally better than other gamepad users.

My problem with the controls are also that I would like a toogle button for it (same way I would like to toogle slowwalk with a macro on gamepad instead of holding circle before walking)
and that the camera autoadjusts to the way your are walking in standard mode, there should be a check function that lets you disable it.

But I better don't speak about the issue that if you gain height with only the z-axis it is slower than a z and y or z and x movement = flying diagonally up is faster than flying vertically up. Which doesn't make sense but that's their engine.