DEMOs

It is a great mode if you want as few pixels as possible and want to render things vertically.
Almost ideal for a Wolfenstein 3D-style game.

It should also be perfectly possible to make a good pinball game on MSX2 with vertical hardware scrolling.
You might need a line IRQ somewhere to extend the height over 256 pixels but that should be fairly painless.

I think MSX could've used a mode in which pixels are 2x1, each with its own color. That'd be 4 KB for 256 tiles, 12 KB for a whole screen... sounds familiar?

It would be wise to remember the original VDP was designed for a minimum of 4kB VRAM. RAM was expensive at the time and the VDP doesn't require much in terms of complementary circuitry. All the usual limitations are perfectly fine for a chip of its time: it can do 40 column text cheaply, it can do colored high resolution graphics with sprites even with just 4kB VRAM (albeit in a very limited fashion), it has 15 colors, and it also has a low resolution mode without color restrictions. What was there at the time? The ZX80? Commodore PET? Those don't come even close.

Thing is, the CRTC is very flexible because it isn't intended to be a complete video generation solution. Its capabilities depend very much on the circuitry around it, and it's a tradeoff game, too. It can be especially powerful on the CPC because of the custom ASIC there, but if you want to use all that power you'll have to use some time to figure it out. So you are trading off time you could be using developing the meaningful parts of your software (for example, game logic or whatever) to extract performance from your highly specialized hardware, time you can't use for any other platform (if you intend to develop for multiple platforms, of course). Meanwhile, Konami did a lot of fun MSX1 games in the late 80s without going beyond vanilla TMS capabilities.

Also, looking at what systems using the CRTC were capable of at the time the MSX was launched, I'm not too terribly impressed. Look around and you'll see what I mean: the TMS gives them a run for their money, except maybe in the high resolution territory. But then, that came at a considerable performance cost (and if they had more VRAM, they were also way more expensive).

would be a good compromise instead of crappy useless 64x48 multicolor mode, but probably uncle karl would been gone crazy for the pain with a hundred of transistors extra