Atari ST user here. AES is as you say rather bare bones. In some ways it's more analogous to X windows "Xt" X intrinsics than it is to any "widget" toolkit -- in that it gives you the facilities for constructing trees of drawn objects, registering applications, communicating between applications, receiving events, opening windows, redrawing windows, etc. but for actual active widgets ... only provides premade alerts, dialogs, windows, menubars, and a file selector. But in fact those pieces are made from object trees like you say. So, yes, with your own event handling you absolutely could write your own widgets directly into the window by drawing an object tree, and more savy developers did that.

I suspect there was maybe an intent to eventually build something higher level above it, still. Just that never happened, or was never standardized. There are in fact some C-level libraries for the Atari ST that do, but they're more recent inventions.

It's not a bad architecture, just incomplete. It wasn't aiming for -- nor would they have had the budget to make -- the same space as MS Windows in that it wasn't a full and complete environment in that way. Even on the Atari ST where they controlled the whole stack instead of being hoisted over MS-DOS.