They'll do smaller satellites, and if they can get an order of magnitude improvement on cooling and power generation to weight ratios, it'll be close to the same order of magnitude cost-wise as a terrestrial datacenter. 10x the cost is likely not enough to make it all work, so it's a bad idea, but it's possibly less bad than using lead ballast for starship launches... maybe.

I still don’t see it. The equipment is very, very expensive, is subject to shortages, and has residual value after five years. But these very low Earth orbit satellites literally burn up when they run out of fuel for station keeping.

Even if you pay a bit more to position them in a higher, more stable orbit, you still can’t physically get to them to repurpose equipment.

Check this datacenter gadget out:

https://www.marvell.com/blogs/sustainable-computing-with-cxl...

That trick is a complete nonstarter if the modules you’re trying to reuse are in space.

Is there some reason significant improvement on cooling and power generation to weight generation ratios is even remotely possible?

“Supervised Full Self Driving.” Buy the hope, sell reality.