Even so, Lit is widely used to build very complex apps (Beaker, as you know, Photoshop, Reddit, Home Assistant, Microsoft App Store, SpaceX things, ...).
Property bindings are just as ergonomic as attributes with the .foo= syntax, and tag name declaration has rarely come up as a big friction point, especially with the declarative @customElement() decorator. The rest is indeed like a faster less proprietary React in many ways.
I also didn't often see Lit being used in a way that stuck to the idea that the DOM should be your state. That could very well be because most web devs are coming to it with a background in react or similar, but when I did see Lit used it often involved a heavy use of in-memory state tracked inside of components and never making it into the DOM.
Our decorators aren't required - you can use the static properties block. If you think the DX is better with decorators... that's why we support them!
And we support TypeScript's "experimental" decorators and standard TC39 decorators, which are supported in TypeScript, Babel, esbuild, and recently SWC and probably more.
Regarding state: Lit makes it easier to write web components. How you architect those web components and where they store their state is up to you. You can stick to attributes and DOM if that's what you want. Some component sets out there make heavy use of data-only elements: something of a DSL in the DOM, like XML.
It just turns out that most developer and most apps have an easier time of presenting state in JS, since JS has much richer facilities for that.
I recall the property passing model being a nasty abstraction breaker. HTML attributes are all strings, so if you wanted to pass objects or functions to children you had to do that via “props” instead of “attributes.”
I also recall the tag names of web components being a pain. Always need a dash, always need to be registered.
None of these problems broke it; they just made it irritating by comparison. There wasn’t really much upside either. No real performance gain or superior feature, and you got fewer features and a smaller ecosystem.