of course they did. That's the literal topic of War Games (1983). You should actually be somewhat reassured that we aren't living during the era of Dr. Strangelove where you had characters in the military industrial complex who were significantly more insane when it came to the beliefs of what computer systems and nukes can do.
> There was a time when people wanted to dig tunnels with nukes
The article seems to be about mining rather than tunnelling.
And the issue with the idea being? We also dig using explosives, there isn't an in-principle problem. Reading the wiki article it looks like the yields were excessive, but at the end of the day mining involves the use of things that go boom. It is easy to imagine small nukes having a place in the industry.
See the 'rationale' section of the article. The point of it was to rebrand nuclear weapons as multi-use 'peaceful' tools and drive acceptance for nuclear weapons programs. Which was a pretty standard tactic of military projects during the cold war.
There was a time when people wanted to dig tunnels with nukes https://en.wikipedia.org/wiki/Project_Plowshare