The dictionary has to be descriptive, not prescriptive. It should reflect how people have actually spoken and used words. Ultimately, that's what language is.
But by the same token, people actually use dictionaries prescriptively. They turn to dictionaries for authority on the "right" meaning of words.
I would take a middle position. A dictionary must eventually track usage, but there's no need for it to rush to anoint every popular solecism.
What lexicographers do it collect a corpus of contemporary usage and then group the words according to word sense, as they see it. I'm not surprised that they found so many hyperbolic "literally"s. I'm sure they also had access to literally tons of people who felt figurative "literally" to be a solecism.
There's merit, as some lexicographers do, in characterizing these groups of words in more sophisticated ways. Hyperbolic senses can be noted. So can loose senses ("sarcasm" that lacks irony) and apparent substitutions ("effect" where "affect" is meant).
It's too bad Merriam-Webster stopped before doing that, and I think they deserve all the criticism for it.