You get a lot more visible compromise and politicking, but that already takes part within the parties in two-party systems. What you avoid is every party having to appeal to the centre to such a major degree. There will be big parties that continue to do so, generally the Social Democrats and the Conservatives, but both between them and to the sides of them you get other parties that can be much more clear in their stances.
It can certainly lead to more centrist government, and it would probably do so in the UK today. On the other hand, smaller parties can push agendas that wouldn't necessarily survive in the intra-party politics of a big tent party.
I think we're talking about subtly different things as I agree it makes voting for smaller parties worthwhile and they themselves won't have to appeal to the centre. I'm not sure why it would lead to laws not being fairly centrist though?
A majority is still needed for every vote in parliament and that means getting another party on-side as it's almost certain no party would have a true majority unlike now. If you take the last election, even though it was huge for the Tories they'd still need the help of the centre to get laws through.
They had 43.5%, Labour 32% and the Lib Dems 11.5%. To get any laws passed (even with support from other parties on the right), the Tories would need the Lib Dems or Labour which means compromise.
I agree that it leads to more choice and people being able to vote for exactly what they believe in which is sorely needed, but the actual law-making needs more compromise and less ability to push whatever the majority party wants the way I see it. The whole political landscape would change long term though, so I guess it's difficult to predict what would happen here.