I think the VFX approach worked well for the movie, and movie critics seem to universally agree that the cinematography and effects were magnificent.
A better comparison would be a modern period epic like Dunkirk.
As per the original author's point, the shot included from Dune looks like something out of a fantasy world, whereas the shot from Lawrence of Arabia just looks like a dude walking around in the desert. But I think this difference was intentional and goes deeper than just CGI
The video "Boston Dynamics Robots Can't be Faked - VFX Artists Explain Why" https://youtu.be/HQ1WEiMwV7Y is also really interesting to watch.
Not sure how much VFX Dunkirk had though - I have not looked into it - I know they did a ton of it practical with an imax camera on the actual planes. Impressive as well but maybe not the best comparison for VFX heavy vs SFX heavy
Yes, Lawrence of Arabia was one of the most expensive at the time. The budget was $15 million, which adjusted for inflation would be $138 million today. The most expensive movie was released the same year, Mutiny on the Bounty, which had a budget of $17 million.
Cleopatra blew that away the following year, with an estimated cost of $35-44 million. Which goes to show you money doesn't buy you a great looking movie.
Realistically yes we should just be doing more practical SFX but you have to realize it is not just some big hollywood exec deciding they want to ONLY do VFX - the available skill market for these things has drastically changed. In the 1980s there were lots of very skilled SFX people and studios that could do some incredible things. The amount of people with those skills has dwindled.
I think the best example of this sort of thing is the OG Jurassic Park. Everyone has an armchair evaluation of why it holds up so well and many are correct but there is a subtle difference most people never bring up. Years ago I worked with a guy much more experienced than me who had originally been a talented stop motion artist and then as the industry progressed moved on to doing animation for VFX. He did a lot of animation for the CGI dinosaurs - imagine the scene where the T-Rex is chasing the jeep for example. The big difference is that because his back story was in stop motion he had a much more direct and real world experience of how things and people move and how their weight is thrown around. One of the underappreciated things in Jurassic Park and why it seems to hold up so well today is simply that the dinosaurs move like they should as huge, lumbering creatures - it ends up a subtle difference that ends up making a huge impact on what we unconsciously accept as "real".