Yes diminishing returns are for sure in place in general and I think something that will benefit the Switch 2 a lot! I think Hellblade is one game where the sum of it's improvements does create a huge leap. One of the only few we've seen this gen (based of the trailer material)
Resolution for example is not something I care massively about at this point. 1080p is a bit soft but will never be bad on a regular TV IMO. My biggest sticking point is actually bad upscalling techniques that create lots of artefacts, dare I say I'd prefer a blurrier but consistent images then a mess of ghosting/artefacting