Releasing the software before publication may hurt if someone else learns your idea from the source code. However, others more often learn your idea from your poster/talk. Releasing the source code does not hurt much more. And even at the tiny risk of letting others learn your novel idea, it is still preferred to advertise and release your tool early when it starts functioning. Publishing a paper usually takes months at the minimum. You may lose potential users in this period; when you finally publish your work, most may have already chosen their favorite. This is especially true in a hot and competitive field. If you want others to use your tool, release early.
I do not think the warnings you got have anything to do with the policy of publication. Numerous popular tools published in good journals are released long before the publication. If you are asking for examples - GATK in Nature Genetics; IGV in Nature BioTech; QCall, Thunder, MAQ and SOAPsnp in Genome Research ... (this list will definitely be longer than a screen on your computer).
EDIT: Here are a few examples for my own works, although biologists may not consider Bioinformatics as a high-profile journal.
- BWA: source code made public on 06/03/2008; manuscript submitted on 02/20/2009 and accepted on 05/12/2009 (11 months before acceptance).
- BWA-SW: source code made public on 08/20/2009; manuscript submitted on 09/19/2009 and accepted on 12/16/2009 (4 months before acceptance).
- MAQ: source code in public SVN since 03/22/2007; manuscript submitted on 03/07/2008 and accepted on 08/13/2008 (17 months before acceptance).
- Samtools: source code in public SVN since 11/25/2008; initial manuscript submitted on 04/28/2009 and accepted on 05/30/2009 (6 months before acceptance). As Brentp has pointed out, the samtools methodology paper was written with all the source code changes directly committed to the public repository.
- PSMC: git repository made public since 01/22/2011; manuscript accepted on 05/20/2011 (4 month before acceptance). This tool is in no way popular, though.
I have not really checked out the source code of GATK outside Broad (GATK was available in SVN, but I cannot check now if it was public that time). I am relatively certain that IGV has been open sourced for years. You need to registration, but you can get the source code (GPL'ed?). Anyway, if you want to see convincing examples of other projects, here are a few:
- Bowtie: source code released on 08/18/2008; manuscript accepted on 03/04/2009 by Genome Biology. TopHat from the same group was released one year before acceptance.
- SoapSNP: source code released on 11/13/2008; manuscript accepted on 03/11/2009 by Genome Research. SOAP from the same group was also released before acceptance.
- BigWig/BigBed: this feature has long been available in the UCSC source code tree, but published only recently.
- Phrap: no one will doubt that Phrap can be published at least in Genome Research. You may argue it is not open source, though.
There are more examples if I really want to dig out. Also, sometimes a project may not keep the full history. It is hard to convince you with such examples.