Gaming

did you think of the possibility that even Larian's low settings still can't run on series S? Given the amount of assets I saw it's actually quite possible that vram requirement are pretty high and that's why PS5 have delay as well so they can figure out ways to consolidate textures used etc. Like they can't even manage to let me stack rope or water bottle properly in inventory(maybe some asset id not cleaned up during development), so having excessive vram usage is fairly easy/common for content heavy games.

The Series S is basically an X with a weaker GPU

And significantly less RAM, which is probably the issue here.

The main difficulty with split screen is that you need to be able to fit everything you need to render the scene into RAM, twice. Let's go through some cases:

Just rendering to a higher resolution still lets you get away with the same amount of RAM if you use low-res textures, or a moderate increase because you're using high-res textures, but only in the foreground -- all you need is enough GPU compute power to push the pixels.

If you're rendering VR both camera perspectives are going to be nearly identical, looking at the same objects, so RAM use is nearly identical to a single camera. Your frame time targets are much stricter in VR, you have to have high and very regular fps or people are going to puke, but again that's compute pressure, not memory pressure.

In the split-screen case all bets are off: When players are at opposite sides of the map there may be literally zero meshes and textures in common between those two areas and you need twice the RAM for twice the amount of camera views. Nothing in common is the worst case, yes, but it's bound to happen, and not leave PR in a situation where they have to say "We degraded performance when players are far apart to promote an atmosphere of closeness and cooperation".

Xbox owners who are not following video game news every second of the day might find themselves buying a Series S version thinking they can play co-op with their friend who owns a Series X and they…can’t.

The problem here is implied to be local co-op between X and S players?

The Series S is basically an X with a weaker GPU

If it was just a GPU difference, you'd be right it should be easy to just run it less pretty. But the memory limitations are the real issue. The X has 16 GB of memory and the S has 10 GB. And worse, the memory performance is drastically different. The X has 10 GB that runs at 560 GB/s and 6 that runs at 336 GB/s, where as the S has 8 GB at 224 GB/s and 2 GB at 56GB/s. (I did not miss a zero on the last value)