Definitely.
Trivia: the original Emacs (written in TECO for PDP-10s running ITS) also had transparent access to remote filesystems using the same syntax (host:path).
It was free though: remote files were accessed over the net via a FUSE-like userspace process.
In the mid 1970s.
TRAMP is more than just opening and writing files: it runs VCS operations remotely, which is very helpful.
https://emacs-lsp.github.io/lsp-mode/page/remote/ suggests that LSP under TRAMP is basically there, though I haven't had occasion to try it.
It can run everything remotely. If you are using eshell, you can
cd /sshx:host:
ls
any remote command
I would say that the dev client/server setup you're describing and what TRAMP provides are different things overall as well. TRAMP really just provides a way to get a file from a remote, edit it locally, and on save write it back to the remote system. I would not consider it a valid use case for remote dev especially now with how prevalent things like LSP's are and I don't know of a major mode that is designed around a remote LSP I'd just do X forwarding or some other screen share at that point. I would agree that overall it's a gap for emacs that VS Code does better.