I haven't used Stage Manager, so I don't know what it is like on a smaller iPad, but I suspect you are right and it is kind of cramped. The big advantage will be when using it with an external monitor, or at least, that's when it will seem most useful.
That said, it is unfortunate that less expensive iPads aren't getting Stage Manager. Imagine buying a base iPad for $329 and then adding a Monitor, keyboard and mouse for maybe $200. While mobile, you would just use your iPad like a regular tablet and occasionally access split screen and slide-over. But at home, with Stage Manger, you might have a decent desktop experience. Anyway, for the casual consumer or the person looking for a simple home computer solution, this could have been a nice option.