I’m fairly sure the issue is going to be repeated melt processing, not so much the mechanical grinding. Yeah, regrinding will damage the polymer a little, but re-extrusion causes polymer shortening via multiple mechanisms (heat, shear, chemical attack, etc) AND ALSO out-gassing of important additives like plasticizers.
It will depend significantly on the polymer type and processing conditions though. For example, virgin PET and to a lesser degree PETG is damaged by moisture – water aggressively cleaves the chains in half via hydrolysis at melt temps – so it has to be incredibly scrupulously dried prior to remelting. With PET, one melt cycle with moisture contamination will destroy it. With PETG, each melt cycle with moisture causes progressive loss of material properties (eg weakening and brittleness). Is proper drying going to be practical in space? Maybe; heat and vacuum are readily available… except you’re outgassing additives with every drying cycle.
I am positive that it’s POSSIBLE to meaningfully recycle materials in space, but to achieve more than ~2 cycles of material reuse I think you would need a non-negligible amount of “infrastructure” in place to manage long-term degradation of material properties. For example, some combination of fresh feed blending, regrind drying, and additive replenishment.
What’s the underlying goal here though? Give the ISS a way to make widgets between resupply missions? If that’s all you want, you might as well just run everything single-pass and ship fresh filament as needed. If you’re trying to help a Mars mission or moon colony be more self-sufficient, I think you’d be looking to get some significant reusability. It’s a different application at that point. You’d be willing to invest R&D and infrastructure into optimizing it.