On the other hand they are compostable at home vs in the environment for a millenia

I think what probably happened is in the 60's we moved toward a culture of disposable packaging. Throughout the following decades, various people decried a culture of waste, and at one point exhorted us to not use as much paper. The original message was "use less paper! Don't use paper bags!" It then morphed to "use less paper! Use plastic bags instead."

You can see the same course in messaging around the three R's, where the original idea "Reduce->Reuse->Recycle" has a lot of merit, but out of a desire for convenience, it morphed into Recycle->Recycle->Recycle, and became a moral crusade wherein we mix totally unrecyclable materials in with valuable recyclables and then throw 90% of the resulting mix away at the destination facility by putting everything non-metallic in a big pile outside to be sorted and then it all washes into rivers.

The original message was trying to get us to move away from a lifestyle of disposability and it instead became a moral crusade for us to take our disposables and just put them in a different receptacle. The real problem has always been disposability, and it won't matter in the end whether we're disposing of paper or plastic. Back when we switched to plastic recycled wood fiber from used paper was totally unsuitable for most purposes, and I would bet that if we went back to largely wood-fiber based disposable packaging we'll see a lot more chemical dumping and used chemicals from the bleaching and washing process end up in a waste stream somewhere else.

Essentially the problem is waste, and everything else distracts from that.

You are right, it also comes down to the individual consumer preferring plastic bags because cold stuff broke paper bags some of the time (2 liter cocacola or juice bottle etc).

Maybe the government should force the use of those bags in certain establishments... regardless of them breaking under moisture or not...