I think it's all a matter of games, not technical power or services.
True... but its not that there will be ndiferene between them though. its just that as you said those differences will not be noticeable/visible. And the XSS should be considered.
On the differences, people look at the 12TF vs 10TF thing and seem to think that it means that the PS5 ould be running at around a 15-20% lower resolution than the XSX. But the world of dynamic resolutions we are in today, that couldn't be further from the truth. Its more like both consoles would run at Native 4K (2160p), but the PS5 will drop to like 1900p/2052p around 10 - 15% of the time. If at all, and assuming we are looking at a game that is truly stressing both machines. This is likely to happen in scenes that are very busy, and here even harder to spot (not like it would even be easy to spot rez differences that minor when already dealing with resolutions that high).
The other difference is the SSD, not gonna go too much into this, but a simple way to put it. Anything at all SSD related that the XSX can do? The PS5 can do it twice as fast. There will be times and games where this is made apparent. And the times coming where we will se texture pop-in or obvious LOD scaling on the XSX that will be non-existent on the PS5.
As for the XSS, its an entry-level digital-only console. Sony's answer to that is the PS5D. Which is their own entry-level digital-only console. A budget-minded gamer, that is neutral, will look at the $299 and $399 boxes. Its kinda easy seeing why it may just be better to spend $100moreonthe PS5D. But the important thing is, for the budget casual, that $100 difference is not going to be enough to sway them from getting a PS5D and going with an XSS. It's not like they are the same thing.