> Wouldn't a working approach be to just create a really low resolution 3D world in the traditional "3D game world" sense to get the spatial consistency. Then this crude map with attributes is fed into frame generation to create the resulting world?

If you go "ultra-low" resolution, that's basically Minecraft or Luanti (formerly Minetest). There some mods for Luanti that let one generate a less "squary" world by adding slopes, but that's still heavily polygonal.

> It wouldn't be infinite, but on the other hand no one has a need for an infinite world either.

Minecraft has an infinite world (with glitches when you go very far from origin due to floating point errors). Luanti's world is finite (around 64000 m^3 because 16 bits coordinates; players move at 2-4m/s usually), some people are working to make it infinite. In my opinion, you are right that nobody needs an infinite world; the argument for an infinite world is that a finite world can be a problem on popular servers but in my eyes servers where this is a problem don't use enough the available space (in particular the huge vertical space that can be used to create multiple worlds) or shoot themselves in the foot by providing players with ways to move fast (mainly transports); increasing the player's speed actually shrinks the world.

I think there is a conundrum from the players and gameplay perspective. On one hand, you want a lot of space, but on the other hand you want to be close to other players (for commerce, play together, etc.). It's not enough to have an infinite world, you also have to have the gameplay that goes with it.

Another thing to consider are the interaction of mobiles (NPCs, enemies) with the terrain. Because nobody likes an infinitely empty world either. I haven't played an AAA game recently, but a decade ago even with precomputed terrain, some mobiles would look silly sometimes with steep terrains.