The problem is almost certainly RAM, not computational horsepower. XSS has nearly identical CPU capability to the XSX, so that won't be the issue. It has a much weaker GPU, but resolutions and effects can be lowered. Where the XSS cannot linearly scale from the XSX is with RAM requirements: it has much less RAM, for anything that is not predominantly using that RAM for VRAM purposes, that cannot be scaled down trivially.

That the issue is showing up with split screen is a strong auger towards the issue being RAM. For split screen the game needs to keep two world-states in memory to handle the characters not being in the exact same place. With enough work they can probably optimize the RAM usage enough to make that work, which is why they still intend to release on XSS/XSX. But they also don't know when, because that's a lot of work and not certain.