I never really buy the "held back" argument, because I can't think of a single gameplay thing in gaming today that wasnt already done in the PS2 gen or earlier. We just don't see these constant revolutionary changes driven by tech that people like to pretend. Instead it's just improved fidelity over the same open world games, FPS titles, MMOs, racing games, third person action games we've been playing for 20+ years. All the really innovative stuff I can think of (SotC, Journey, battle royale as a genre, Minecraft to name a few examples) has had exactly 0 to do with technical power of the device.
Series S will move the baseline up to a really solid CPU and fast SSD which is where any real potential tech-driven innovation lies this gen, so that shouldn't be a problem. Yeah, visually the DF comparisons might get ugly. But "ugly" relative to a very high bar from PS5/Series X.
That said, I do wish it had shipped at 12GB and 5TF if only to make dev's lives easier. Sounds like they cut it very close (to be charitable) on the 1440p target.