Imo, the idea that a bad guy is going to give up the fight because he spots a red dot dancing around on his chest is a thoroughly bogus one.
I think it belongs on the shelf with the whole racking the slide on the shotgun myth. Locals in a combat zone react to the laser differently because they have seen it before and know what it means. They might even be looking for it. Bad guys won't give it another thought as it is not expected.