The biggest problem I see with these in house programs iss that they will suggest keywords that are easy to rank for and have no traffic. That way they can say they ranked you for a business related keyword.
I recently took over an account from homestead that was charging my client $100 a month for SEO service. All they did was add a few keywords into t e description of the page, and built a few links (in 2 years of her having that service, they had build less than 20 links. )
She told me that when I took over her SEO, I tripped her income in 3 months. All I did was find some good keywords, introduce them into her pages and did some basic local directory listings with the descriptions and information I developed.
As far as I am concerned, the in house services of these hosters are designed to part ignorant people with their money, much like the Warrior Forum.
I do not use these services myself, but I have customers who tried various ones out and were not served well. None of my customers were using hostgator for SEO, so I cannot comment on hostgator itself.