I think you're seriously underestimating both cost sensitivity, and the degree to which chip packaging evolves.
I worked on a bit of premium consumer electronics. Retail would be about $80. That allowed an electronics BOM cost of $20. When selecting the processor, the size of the flash was a more dominant effect than RAM, clock speed or chip peripherals, because we're in the $1 vs $1.20 region.
There is a lot of software running in some very cheap electronics, all around you all the time. Everyone just forgets because it's all designed in corporations and not talked about on the internet so much.
SPI chips are unreasonably expensive per MB compared to NAND, some reasons on why: https://electronics.stackexchange.com/questions/32200/why-is...
and why would you run k3s on these ...
A a few hundreds of megabytes of flash will soon cost less than the plastic and manufacturing costs of the chip itself. At that point, manufacturers will be putting in 128megabyte flash chips simply because 16 megabyte flash chips cost more.
The only place that argument won't apply is in microcontrollers where the flash is on the same die as the CPU.