Does a mandarin really care if it has sand in the tank? I'm not so sure. I had scooters who would bury themselves at night but mandarins that I've kept would simply sleep on top of the sand, not in it. And I'm not so sure that having a sandbed means you have more bugs in the tank for hunting, really the best breeding grounds for bugs and pods is basically anyplace where they can't be hunted (so pod piles and / or refugia, and so on).
I used to think my fairy wrasses would care if there was no sand bed, as I used to have a
C. rubriventralis who would occasionally sleep buried in the sand. Eventually he stopped doing that though, in preference for spots in the rocks that he could make a sleeping cocoon. I have never observed my
C. lubbocki or my
C. cyanopleura sleep in the sand either, they find nooks and crevasses to sleep in and they seem to be OK with that. So personally I've lost another reason to not abandon the sand bed since I used to say "my fairy wrasse sleeps in the sand bed."
Sand sifting gobies, and burrowing fish such as jawfish require a soft subtrate still of course. Of course in the case of a jawfish you not only require a sand bed but you require a DEEP sandbed so the fish can make a burrow with the proper depth and so on.
But as for other fish, at least, I can't imagine that any of my fish (tang, wrasses, clowns, hawkfish, blenny) care enough about the sandbed that whether it's there or not has any impact on psychological well being. I'd say rocks with hiding holes and texture is more important to them.
Now LPS though .. I always thought some LPS look better on sand. Open brain corals, plate corals, etc. I think these seem to belong on a sandbed. I suppose you could have them on a hard substrate but it seems kind of .. I dunno .. not quite right.
