I don't disagree with the point of your post in general, but I don't know if this is quite the case when considering the cost of the storage media itself.
Let's say that Nintendo wants their new hardware to have effective read speeds of 1GB/s. If they went the "screw compression, let's just use fast storage" approach, they would need (say) 256GB of 1GB/s eUFS internal storage, and for big game X they would need to manufacture and ship a 64GB 1GB/s game card for the physical edition.
Compare that to the case where they've got a 2:1 compression algorithm which they can decompress via a small hardware block on the SoC. Now they only need 128GB of 500MB/s internal storage to hold the same number of games, and big game X can ship on a 32GB 500MB/s game card. I think it's a safe bet that adding the FDE to the SoC is significantly cheaper than using larger and faster internal storage and shipping games on larger and faster game cards over the course of the entire generation. This should be true regardless of their target effective read speeds.
I don't think the existence of the FDE tells us very much about the storage speed to expect, but it does tell us that Nintendo wants to take the decompression workload off the CPU. If all were were concerned about was faster loading screens with compressed data, having eight A78 (or similar) CPU cores, presumably running at a higher clock, would already give them that. Ditto with PS5 and XBSX, they would have already been able to achieve much faster loading of compressed data by virtue of CPU improvements alone.
It's not a coincidence that fast SSDs and hardware decompression blocks arrived in Sony and MS's consoles in the same generation as a meagre 2x jump in RAM capacity over the previous gen (both PS3 and PS4 had 16x as much RAM as the previous gen). GDDR6 is expensive, but fast SSDs and hardware decompression blocks are (relatively) cheap, so rather than spending lots of money on 32GB or more GDDR6, you go with less RAM, but rely on games streaming assets in and out of RAM at very high speed to make more efficient use of the RAM you have. If you expect developers to use compression, though
(which as a platform holder you want, because it means you have to spend less money on storage), then using CPU decompression would be a problem because suddenly several CPU cores are being used up during the game just to decompress all those assets you're streaming in. Hence the decompression block, as it allows developers to stream in compressed assets at high speed during gameplay while leaving the CPU free to do everything else it needs to do.
I expect Nintendo's reasoning for including the FDE is the same. If they just wanted faster loading screens, the CPU improvement would give them that. Most game engines (including Nintendo's) already make heavy use of asset streaming, and with Sony and MS's adoption of "not much RAM, but very fast SSD" architectures, game engines going forward will be built around even more aggressive asset streaming. Nintendo is obviously conscious of this, and wants to be able to handle these approaches without cutting into CPU performance.
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