What could split screen bring that it will not work with the S memory? Because one object will not take up twice the space just because split screen. The texture of it will (hopefully) only loaded once for both screens.
What can change is the total amount of objects that are loaded into memory since the players can now be simultaneously on two different places.
So as a Developer you will need to find a way to get around this. Maybe by reducing the textures of the objects even more, so that you can load more of them in the same space. Or maybe by remove non essential object from the scene at all so that by default less object needed to be loaded. Also the screen is now half the size so maybe limit the field of view more to start loading in objects a little later.
What ever they decide to do, this will require additional steps that are only needed because MS want's the game to be optimised for the series S.
From a Developer perspective I could understand if they maybe decide to ditch the Xbox release completely because of this additional workload needed.
Plus: if removing background objects from the scene in order to save memory is something that needs to be consistent on both S and X version because of MS policy, you will get "less graphics" on the X then what would be possible, just because the S exist... What completely undermines the complete existence of the X.
And of course non of this is just because split screen. This will most likely be true for every game on Xbox. It's just that for most games it's enough to cut resolution down for the S and leave the rest as it is.