So part of it is that it was only 2 discs partially for marketing reasons, partially because of limitations of how discs work (ironically enough, other than storage size, carts are magnitudes better for gaming compared to discs.) Discs often have to have multiple copies of the exact same content in multiple places because of physical/spacial concerns on the disc regarding load times.

Part of it is, yes, slightly reduced texture fidelity and sound quality, but you're sleeping on the compression- they actually invented an entirely new compression mechanism for the FMVs that was effectively magic. Add that into a bunch of tricks they did to take advantage of the n64 being vastly more powerful than the ps1, and the ability to take advantage of cartridges having insta-load capabilities, they were able to release a version of RE2 that had better controls, slightly less graphical fidelity, less z-index jutter, better animations, surround sound, more lore, VASTLY better load times, and did I mention better controls, because god damn does that need to be mentioned lol... in 9% of the space.