Modern computers don’t have less ram than the old fashioned room size computers. Amount of RAM seems much more analogous here than the size of the hardware running the software. Of course the latter will go down, but the former? I don’t see why.
So in this way you've already lost your bet, as we already know that it's possible to create vastly smaller models with similar performance.
Nevertheless, I have not actually seen a model exhibiting high-level LM capabilities (of the GPT-4 level) that was distilled.
Just because a model can match in perplexity with fewer parameters is not the same as matching the performance as subjectively measured by humanity interacting with the model.
Regardless, this isn't the trend we've seen with software RAM usage - information density is only decreasing as hardware becomes more abundant and comparatively less engineering effort goes into fitting everything into as small a portion as possible.