Hyper-Separatism is a term many use when referring to the practice in Christian fundamentalism which requires a separation from the world that goes well beyond the biblical mandate into territory that is ultra-legalistic and breeds hypocrisy because no one can possibly live up to its own self imposed standards.
Nobody wants to live like they are constantly under a gavel of judgment in their lives. In fact, the Christian life is to be one of liberty in Christ free from the bondage of sin, and under grace so that we are no longer under law. This does not mean that God's moral decree is absent, and it does not mean that a healthy separation from the world is not called for in Scripture, but when we venture into a type of hyper-separatism it can only breed legalism and hypocrisy among those that subscribe to it.
Those that subscribe to and attempt to enforce hyper-separatism in fundamentalism or anywhere else for that matter are pushing a system that can't possibly be followed with any regularity. Furthermore, it is a breeding ground for hypocrisy because you can't possibly cover all grounds. At some point there will be an issue or rule against something where there is an impossibility to be consistent across the board and thus the hypocrisy floodgates are opened up.
Also, it has been my experience that those who are the most legalistic among us tend to be the most hypocritical because they can't possibly hold up under the weight of the impossible standards they have set not only for themselves but for everyone else.
The Bible does speak to worldly separation, and God does command us to be holy as He is holy (Lev. 11:44), but the Bible does not give an exhaustive list of what this looks like. It primarily does not do this because as time moves forward and as things change, cultures change, and with cultural changes there are new ways to sin and new things to avoid. The idea that the Bible could even possibly provide an exhaustive list of things to "not do" or things "to avoid" or ways to "be separate" is foolish to begin with.
At the core of hyper-separatism is the idea of forced outward conformity. This is essence is the true goal of fundamentalism, and legalism in general to be exact. It is designed not with holiness in mind but keeping control over those in the "flock." Without a system of regulations and rules and without someone to stand as judge and authoritarian there is no way to keep the masses under control and keep them conformed to the system.
In the fundamentalist circles the Pastor is that authoritarian. He is viewed as some sort of rock star to be worshiped and not questioned whether in doctrine or in practice. This type of man-worship is a breeding ground for sin and hypocrisy. We need look no further than what has occurred in the fundamentalist ranks over the past 50 years with scores of sexual abuse and lives ruined from not being "good little Christians" and doing whatever they were told.
The biblical model for separation which in detail is a discussion for another day has at its base a view of where one's heart is, not whether they conform outwardly to any system or list of legalistic regulations. Jesus many times confronted the Pharisees and Legalists of His day and had some of His harshest words reserved for them because they demanded outward conformity while completely ignoring the root of man's problem which lies in the heart.
Man's total depravity and sin problem can't be solved with outward conformity to Law, and it our sin debt can't be paid by someone who is a sinner so the attempt to do so in our daily lives, the attempt to somehow live up to some impossible standard was never our cross to bear in the first place.
Christ did what no one could do. He lived a perfect, sinless life that completely followed and upheld the Law thus making Him the only sacrifice that could be given for sin. He is the only sacrifice that could be given to God to atone for sin for He is the only lamb without spot or blemish. Christians are to be separated from the world yes, but at the heart of the separation is a love for God, and a willingness to seek His Kingdom and walk in His ways.
While the Bible does mandate that sin should be avoided and we should pursue righteousness in our lives and while we should proclaim God's Word and promote a separation from the world's system of thought and living, this does not give any of us the right to fully run and govern another's life to the degree that fundamentalism seeks to govern.
Fundamentalism will attempt to sugar coat this doctrine of hyper-separatism by labeling it as "standards" and stating that anyone that does not agree with them is just simply against standards and wants to go out and live like the world. This however, could not be farther from the truth. Those who do not subscribe to hyper-separatism but do in fact seek to live holy and righteous lives before God, do have standards and do seek to obey God's commands; but they also walk in the Christian liberty that was afforded to us by Christ in His work on the cross of Calvary.
Ultimately, what happens when you are caught up in fundamentalism and when you are seeking to live a life of hyper-separatism you inevitably always end up living a life of hypocrisy. A life of "do what I say and not as I do" which is a breeding ground for hypocrisy because it sets up the person to put forth one expectation while living something that can never match up.
Legalism is dangerous and is one of the hallmarks of Christian fundamentalism that finds its roots in the late 19th century in response to much of the liberalism that was finding its way into the culture and churches of that day; so while the fight against liberalism is one that should be waged, the way in which fundamentalism decided to wage it is just as unbiblical as liberalism is in the first place.