"In-engine" cinematic stuff isn't going to do the trick; gamers have wised up to the fact that these can be faked. The reason the UE5 demo worked so well was that it was presented as gameplay. Whatever the best looking game MS have up their sleeve at the moment, they should put together a gameplay showcase for it. Show what their new system can do and why people who care about visuals shouldn't just get a PS5 instead.
This is a funny paragraph. You say that gamers have become smarter, then immediately go back to talk about a tech demo for an engine that - despite it going to be used on both consoles - had gamers buy into the kool-aid that the PS5 will be the only console that can pull it off. The only part of the tech demo that is in question is the final one where the character flies through a canyon at high speed, but the practical implementation of that is limited anyway. The next Elder Scrolls and Witcher games won't have horses that get powered by jet engines, so SSD discussions are virtually pointless.
The tech demo will soon be moot, because people are going to care about what they can actually play. In regards to that, Microsoft has set their bar low with their third party event while Sony has set their bar high with the UE5 demo. This isn't unlike the 360 vs. PS3 generation where Microsoft suffered from the initial comparison between reality and fantasy, but when the cards had to be put on the table, it was Gears of War that impressed people while the PS3 had turned into a laughing stock for failing to deliver on its hype.
We already know that Halo Infinite and Forza 8 are supposed to be very early XSX games and the development focus was on the new console, not the old one. On the other hand, we know that most of Sony's major studios have released PS4 games from 2018 to 2020, so their arsenal is limited. At least on paper Microsoft has better preparation to get strong out of the gates next gen. Nevermind that currently the SSD is the only hardware component where the PS5 is better than the XSX, so people who care about visuals shouldn't be oblivious to that.
It is still easy to wow gamers with tech demos, but to do so you have to present it as gameplay, as they've become used to cinematics being pre-rendered BS.
Hence why I suggested MS need to show off specifically a gameplay showcase that can at least equal the UE5 demo, lest we see a repeat of the situation where the Xbox One X was more powerful than the PS4 Pro, yet the perception is still that PS has the best looking games.