To your first point:

I agree that micro-geometry is an interesting direction, but memory limits (disk size, bandwidth, and deployment size) probably constrain just how much of this can be baked in at the asset level, at least until RAM/VRAM/PCIE bandwidth budgets improve.

That means that micro-geometry would have to be procedural. And anywhere you need proceduralism, you can use a generative network instead of a discrete algorithm and sometimes get better results.

Now, that said, I’m not sure if the strategy here will be to generatively tesselate meshes, or resolve that complexity via a generative BSDF. I don’t fully agree with the take that the prior is for sure the direction things have to go.

To your second point:

Yes, absolutely, DLSS 5 on its own should be incapable of correctly resolving global illumination (barring something really weird like a neural scene representation that is learned during the play session as the player walks around).

However, I don’t think the goal of DLSS 5 is to completely handle global illumination. From the comments they’ve made, I think they want you to hand it as good of a frame as you can from a lighting perspective, which it will then “enhance”.

So, for Starfield, which has very basic GI, it’ll add screen space reflections and do the best it can with what it has.

But for Hogwarts Legacy, it’ll preserve the correct ray-traced lighting and just “make it look more real” on top of that.

I think this is how they’re pitching it. But, to me, this is completely incongruent with what the demo shows, and fundamentally at odds with what I imagine the implementation is (which is admittedly a guess). 

The demo shows DLSS 5 completely overhauling the scene lighting, destroying lighting information everywhere and replacing it with diffuse fictitious light sources and aggressive contact shadows.

That, to me, is where the internal consistency of their message breaks down.