But that's precisely my point. Pruned Ethereum nodes hold _all_ blocks and therefore are full nodes. In Ethereum, unlike pruning Bitcoin nodes, old blocks are not deleted.

Yes but you only need the transaction history for that, since you can reconstruct any block state you wish from the transactions.

If blocks doesn’t have anything extra that transactions cannot create then why is block bloated and why do we even need it?

You don't. Full nodes do just fine without storing all those block states.

You need the current state, and very recent history just to make sure there's no shenanigans, but you don't need old state unless you're doing historical queries for some reason.