What it comes down to is how you want to evaluate pitching. The people you're arguing with are looking at the outcomes that a pitcher can control: strikeouts, walks, ground balls. By that metric, Alvarez has been pretty good: a true-talent 3.4-3.5 ERA guy helped out by a very favourable home park. What you're doing is crediting him for things our of his control: defense, favourable clustering of events, favourable home aprk etc.. He probably hasn't actually done anything himself to contribute the ERA that is so much lower than his FIP or xFIP, so people aren't really inclined to evaluate his performance as though it should have yielded an ERA well under 3.
The argument is kind of silly, in that neither side is going to agree and you're going to go in circles. I think everyone can agree that Alvarez has been good. At least league average, and probably better.