This might not be true NOW, but DLSS 1 had lots of problems and crap visual quality. DLSS 2.0 was better but still had worse visuals than native, DLSS 2.1 (2.5 or whatever) dramatically improved on one of these, I don't remember which, and made DLSS as good as or better than native for the first time, whilst improving performance but still had bugs and problems in some games.Meaning, DLSS Quality running at 1440p like I use, will look better than 1440p native, while boosting performance by 50-75% on top. Win/win for most gamers.
DLAA is everyhing DLSS is, just without upscaling, uses native res and just improve the image quality. And this is why native res gaming don't matter anymore, because native res with 3rd party AA on top looks worse. TAA is terrible just to name one inferior solution.
DLAA is the best anti aliasing method today and will work in all DLSS games. DLAA is part of DLSS presets now.
Still boggles my mind that some people think DLSS is only for improving performance while sacrificing visuals, this is not true at all.
So with that little history lesson out of the way, there are a lot of people who have the impression of DLSS still having crap visual quality and it not really being any better than any other solution whether in game or FSR because up until DLSS 3, that was the case. DLSS 3 really changed this. A lot of people don't keep up with all of the new things all of the time, and tend to look deeply into their options a while before making a purchase at which point if someone was in the market right now DLSS 3 would be a real choice for people to consider, but when someone bought a graphics card 2-3 years ago it wouldn't have made much of an impact on their choice for most people.
AMD certainly IS now putting a lot of time effort and money into FSR, not least because as you say, both the PS5 Pro and XBox 7X will use upscaling AND both of them are using semi-custom AMD silicon, with the PS5 Pro being dubbed as Radeon 3.5 with something special requested by Sony, and the XBox C4 will either do something similar or use Radeon 4 (or 4.5, or 5 as they are way behind).AMD needs to vastly improve FSR going forward, maybe they should go the hardware route like Nvidia. More and more games rely on upscalers as AA now. Upcoming PS5 Pro and next gen Xbox also will rely on upscalers. Upscaling is here to stay, game devs embraced it and every single new AAA games has it built in. It is even enabled as default, also in AMD sponsored Starfield. Sadly it looked crazy bad and RTX users installed DLSS/DLAA mod on day one which beat FSR2 with ease AMD users were better off enabling CAS Shapening in the game, sadly performance takes a hit.
On that note, it has been rumoured (take a pinch of salt) that there is dedicated hardware for FSR 3.x (or 4, or whatever) in the RDNA 4 cards coming out later this year.