Maybe in that alternative future of massive block devices some downward pressure on image sizes would have been applied just the same.

It's not as easy; a block device has to be bootable and so usually bundles a kernel (large). And because the filesystem inside is opaque, you can't do layering like Docker does easily via overlayfs and friends. libguestfs does a heroic job of making VM images easier to manipulate from code, but it's an uphill battle...