Even with the warning, people assume that backup means they aren't losing anything, and can get back the original pics whenever they like. In fact, image data is being lost here. You can never get back your original photos, only highly compressed smaller sized JPGs that will look OK on a mobile screen.

There is an option when you turn on Google photo to backup "High Quality" (Unlimited) or "Original" (with limited capacity, I think it uses Google Drive capacity but am not sure)

.. Unless you choose exactly that option when presented at install time. So people may regret getting exactly the behavior that they chose?

You can choose whether to backup converted photos or originals.