No one will want to go back to 720p after getting used to 1080.

i don't see need for same storage size, high res assets not only wouldn't be needed, but would put excessive strain on the system, esp. with low RAM. i expect Lockhart would use specific version of games with asset resolution optimized for it's capabilities, even if most game code is generally identical. Lockhart may just not download (or copy from disc) the high resolutions, and download or copy the Lockhart-specific low resolution assets SX doesn't.

on potential scaling problems, besides games that run at sub-4K on series x probably needing to scale to sub-1080p (which is more noticeable relatively), there is also physics and other compute applications of GPU that don't really scale, so if not touching those Lockhart will need to scale the rest much harder. (i.e. if physics/etc uses 2 TF that leaves 10 on SX but only 2 on Lockhardt, forcing to scale non-physics GPU load worse than 1080p equivalent of SX) that is excessive example, and if stats are correct they are provisioning 1/3 the TF for 1/4 the pixels, leaving room for that... but will it always be enough  room? although fair to say, plenty of games could probably have BETTER relative performance on Lockhart at 1080p than on SX at 4K, even if some have problems. (of course, games could also offer 'performance mode' on SX that lowers resolution/etc somewhat for better FPS or whatever is prioritized by that mode)

overall, find it weird if MS aren't launching with this, if devs will need to tweak games from day 1 to run on this sub-variant, weird to not actually sell it from day 1... although MS hasn't finished with all their pre-launch presentations eitiher, so who knows there. the more different specs within the platform, the more games will be held back by whatever lowest common denominator, even if bottleneck changes per game. dividing a gen like this doesn't seem like a good idea for the platform that has less than half it's direct competition, that much less payoff for the trouble it creates for developers. EDIT: also relevant to consider is how MS will continue to sell lastgen Xbox for awhile to price senstive consumers. selling Lockhart right away would get those consumers growing the newgen install base. although maybe 3rd parties are happier selling crossgen games to large lastgen base? /shrug

relatedly, i wonder about future high spec version of SX, if they will be doing that for one, but how it might play out... seems like the obvious way to address the performance benefits of Sony's advanced I/O architecture is expanding RAM capacity since that is what Sony's architecture "virtually" achieves basically. with consoles the baseline for much AAA development, also interesting to see if Sony's architecture leads to PC gaming embracing larger GPU memory size.

why are we saying this isn't enough if DLSS like implementations will still make this thing run anything the actual bigdickconsoles will

I never thought of that. your right, the xbox one name might be poisonous. that really could be a good reason to change the name even if the performance is the same.

There are rumors that the lockhart apu is meant for surface laptops. But that would cost more than an xsx most likely. I would not be surprised if part of the family is a set of laptops ranging from the rumor 4tf and going up to maybe matching the xsx at maybe a heafty premium. I would definetly consider that a mic drop moment. I have zero interest in an xsx, but if they make that laptop lockhart =< $1000 I would buy it instanly.  

I assume this console will appeal to parents only

I can imagine pissed kids complaining their parents bought the cheap skate version.

A material with 1x1024 texture resolution set takes 1 draw call to render.
A material with 1x2048 texture resolution set takes 1 draw call to render.

Those draw calls are independent of the display and texture resolution, so the number of draw calls to render the high or low quality asset is exactly the same.

Draw calls are the number of "calls" for assets, not the fundamental quality if that makes sense.

Don't understand why it would still need 1 Tb of storage?

Hell no it isn't.
Just like a 32bit console can be faster than a 64bit console... Not everything is about Teraflops.

The SSD will allow for a more efficient use of memory.

The Xbox One X also uses allot of it's Ram chasing the "4k dream". - Microsoft for example retained a 1080P dashboard on the Xbox One X in order to reign in memory consumption of the UI/OS.

Basically it works the same way games on Xbox One do now.
There are some "flags" that are exposed to developers, so that game settings are adjusted depending on the hardware.

That also means that Microsoft may have additional flags that pertains to more hardware sets than just Lockhart or Xbox Series X, so in the future when they release a "pro" console games can be upgraded further.

An SSD isn't a replacement for Ram, we need to keep that in mind.

Because we don't have any demonstration of DLSS quality image reconstruction on PS5 or XSX yet. The functionality is built into Nvidia cards, so its not a given PS5/SX will be able to easily replicate that level of reconstruction (i.e 540p to 1080p) but maybe someone more informed on the matter can give their take. 

OP;

The specs look fine for launch and this will indeed make a compelling purchase for people not concerned about 4k., but I worry how this system will age down the road. People who pick this up at launch get a system which is simply running at 1080p, great! 4 years down the line they have a system which is having ray tracing features cut, have performance modes cut, is having to drop to 720p and lower.

For example previews of Cyberpunk 2077

"The performance report from the German publication is a bit concerning on multiple levels, as the Cyberpunk 2077 preview apparently ran at 1080p with DLSS 2.0 enabled (announced yesterday by NVIDIA to be available for the game) and some (but not all) raytracing effects enabled on a computer powered by the mighty RTX 2080Ti graphics card." 

https://wccftech.com/cyberpunk-2077-preview-ran-at-1080p-with-dlss-2-0-enabled-on-an-rtx-2080ti-powered-pc/This is just a glimpse of the future where game devs are pushing powerful hardware to the max. So I worry about how Series S fits into these kind of equations when 4k is no longer the target. It sounds like it will eventually be a nuisance for developers and consumers will eventually start to get more compromises on it then they bargained for. In the end if it can deliver the same kind of visual experience and developers do not use it as a base (and instead port down to it, ala Switch) then I guess it will be a nice inclusion into next gen. 

Microsoft has an alternative, it is called DirectML.

AMD has also done "Radeon Image Sharpening" with some good results.

Image reconstruction is nothing new, Doom was doing it back in 1993, approaching 30 years ago.