> Basically if you put $1000 of capital into the pot for making flash loans, then you are foregoing the X% / year that you could earn on interest, i.e. you are losing money.

The funds aren't foregoing interest in all cases though. Ex: uniswap, curve, etc all require assets to be deposited, and pay depositors trading fees. These protocols could generate additional income by providing assets for flash loans without affecting the income received for acting as an amm.