Yes, but hair is one more thing to grab onto, or get caught in something. If you think scalp and facial hair is not a problem in hand to hand fights then you haven't seen many hand to hand fights.
And ''exceedingly rare'' does not matter. Exceedingly rare things kill people every single day. Prepare for it because if it can happen it will happen to someone somewhere sometime. That could be you.It makes a lot of sense if preparing for this situation is relatively easy and it can mean the difference between life or death. (preparing for hand to hand fights in general)
Heck, I carry a knife every single day, the chances that I'll ever have to pull it, let alone use it, are extremely slim. But carrying the knife is easy, and when I need it I NEED it. So there is no reason not to carry one, despite the fact that I'll probably never need it.
I'm just curious but why not carry a gun instead of a knife? Don't knives need you to be up close to the opponent thereby putting yourself in a dangerous position. Also what if there are multiple opponents? Have you seen or been in any real life hand to hand combat situations?
As for long hair being impractical in ME, pulling hair is a highly impractical thing to do in itself with the characters having advanced gear and armor along with shields/barriers and access to biotics and tech powers. You have more of a chance of being set on fire, frozen, electrocuted or getting ripped apart with biotics than getting your hair pulled and that's if you get in close combat range first. Mass effect has also taken plenty of liberties when it comes to realism in game. Not to mention that having fun >> realism.
Besides it's optional, don't like long hair, ignore it and play the game according to your headcannon. It's an rpg after all. Saying that it'll break your immersion just because other players can play with long hair is rather strange.