This has always been the case in sports. I personally don't agree with setting some arbitrary limit on technology creating systems like Formula 1, which then becomes a race against regulations and who can most creatively push the rules & find workarounds.
The sport I know best is climbing, and the progression of gear over the past 50 years has enabled as you say STUPID HUGE gains in allowing the strongest athletes to push the envelope of what's possible. I can't imagine having to climb with old gear and shoes. Went from climbing in Converses with DIY pro to specialized rubber on shoes with similar ideas to Vaporfly in how they shape the foot and have flex or not based on the route need. We now wear different shoes for different styles of routes.
Now knee pads are becoming standard which has downgraded some famous routes and upped the highest end grades. Some climbers just log 'without' 'with' grades I guess you could do that with running, but no one is saying Adam Ondra didn't climb the hardest route in the world because he used a knee pad and similarly I don't think it's fair to take away Phelp's achievements.
Even going beyond 'solo' nature of climbing, the technology is the same in competitions. Gear pushes the sport and I think that's a good thing.
Imagine some kind of glove that grips for you, or shoes with glue on the bottom. Or... there's no real limit here. Might as well just wear a hover belt and float to the top :)
At some point you have to say "this is enough tech". So the question is, what is that point?
And even if we go that far somehow I think the differentiation will come naturally. In climbing there is a totally separate thing called Aid Climbing where it's kind of like you say floating to the top haha. Pulling on ladders or whatever to completely eliminate strength and effort. It's not treated as remotely the same sport as free climbing.
You aren't allowed to bring your own soccer ball, basketball, football, etc. Why do we allow some items that have a huge impact, to be up to the player/team?
On the other hand, there are many championships where all drivers must drive the exact same car, or the cars are heavily regulated in terms of power output. Here it's all about the raw skill of the driver.
There is room for both of these in running.
Until recently, swimming advances didn't matter all that much. It's only in the last decade or so that the fabrics became better than the swimmer's skin, and they started covering up more of the body. That gave substantial advantages to swimmers with a ton of money.
(Substantial being relative, of course. We're talking 1% improvements, so you're not taking on Michael Phelps in one of these, even if he were wearing a ball gown. But it's the difference between gold and not qualifying for the final heat.)
Cycling similarly allows picking the bicycle frame to match the rider’s body. It does have a minimum weight for bicycles, though (6.8kg, which is high for current tech. Given deep enough pockets, 2.7kg was possible in 2010. See https://www.tririg.com/articles.php?id=1035_Worlds_Lightest_...), and regulations that effectively forbid recumbent bikes.
In some cases, flexibility also is there for historical reasons. In soccer, not even field size is fixed (with exceptions for top levels) for that reason (fields inside athletics tracks tend to be longer and less wide than fields inside stadiums specifically built for soccer)
A soccer field must be rectangular, but can be anywhere from 45 to 90 meters wide and anywhere from 90 to 120 meters long (https://resources.fifa.com/image/upload/spielregeln-2019-20....)
So, minimum size is 90m × 45m, maximum size is 120m × 90m. Area-wise, that’s a factor of 2⅔.
Source: https://operations.nfl.com/gameday/pre-game/nfl-game-ball-pr...
The list can basically go on forever. With no real "a priori" idea on where you have to stop to no longer find a benefit in equipment. Could even go back to "access to gym" or "access to trainer" and expect a level of influence.
For example, athletes from wealthy countries are exposed to better training techniques and apparatus. Is that fair?
That said, the equipment sponsorships are a major part of the equation, very expensive, and very competitive. I think it forms a larger part of the budget for less successful teams, where title sponsorship is less lucrative. And in any case, it's its own form of "title" sponsorship.. I'm not sure how much benefit Pinarello would get from being on the jerseys - everyone knows Ineos rides Pinarello.
But anyway, I think my point that this lucrative competition prevents standardization is valid.
https://cyclingtips.com/2017/05/200-bikes-and-a-lot-of-cash-...
Some of the suits that Phelps and folks wore were just so stupidly cutting edge in terms of their effects on stroke efficiency. I think the world swimming organizations have done a better job of regulating here, but again it sounds like ALL sports are required to have their governing bodies playing a bit of cat and mouse to keep the playing field as even as possible.