Maybe, but confusing iMessage and SMS doesn’t seem to be a problem for iOS users who use both in the same app. The bigger problem was going to be RCS. 3rd party apps can’t use it, so as SMS conversations moved to RCS the SMS support in the Signal app would become less useful or even confusing.

It did in fact support even that. That's how the whole thing started, as TextSecure which encrypted SMS.

Yeah, as an iPhone Signal user, the concept that you'd ever use want to use it for anything other than explicitly encrypted messaging never even occurred to me. I learned about this feature that the Android version had when they announced it would be discontinued. I would even consider the "graceful" fall back to SMS to be potentially an anti-feature/security flaw, as it opens you up to downgrade attacks.