I tend to agree with the carpenter and building supplier you talked with. There will be negligible insulation value to installing sheathing at that location. Sheating normally serves more of a structural function, and it appears it is not needed here. I wonder if the siding is visibly at at different depth above the soffit friese. Normally sheathing would maintain the same depth up an entire wall, but who knows. I doubt there will be sufficient advantage to warrant tearing off siding and placing sheating then replacing siding and installing the soffit.
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