That statement lacks a lot of context and should not be taken as gospel. It can ONLY be true if you measure THD at the PCC (Point of Common Coupling) with ALL loads in your facility disconnected, in other words with your main service disconnect open.
Chris,
Current distortion (THD-I) in YOUR facility is what causes voltage distortion (THD-V) on the supply, and THD-V is what can "travel" to your neighbors via the utility lines. But THD-V that is already high at your PCC when it arrives from the utility will exacerbate any THD-I that your facility creates. That's why IEEE-519 has requirements for BOTH you and the utility to limit it. The utility must ensure that the THD-V at your PCC is no more than 5% with your service disconnected, YOU must ensure that your THD-I is low enough to not CAUSE more than 5% at the PCC when the service is connected.
The 5% THD-V rule applies in any case, unless you are a "critical system" like a hospital or air traffic control site, in which case it's 3%, or 10% for a site that is exclusively converter loads, such as a utility HV transmission converter station, radio transmitting tower or a radar site (because they are typically remote enough to mitigate the THD-V by the time it gets to someone else).
The thing that DOES vary by the size of your service (i.e. available short circuit current) vs the load you connect to it, referred to as the TDD (Total DEMAND Distortion), is the allowable amount of THD-I. That's why you were asked that question. 7-1/2% THD-I in a facility where the ratio of Iload to ISC is high may be perfectly acceptable, because the system is so "stiff" that it has little effect on the THD-V at the PCC. but 7-1/2% THD-V at your PCC is in violation of IEEE-519. Then again, the ONLY place it matters is at the PCC, so if you are measuring that value at a panelboard somewhere way down stream of the service connection, it may be something that ends up mitigated by the time it gets to the PCC and not worth getting excited about.
So what all this means is, the devil is in the details here.