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I too always wonder why this is often given as an excuse for various aspects of AO and AE's design. Technical limitations on a 2D Sidescroller? I know they talk about memory being an issue for certain things, but other than that I doubt the PS1 had too much trouble running games like these.
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Now don't get me wrong, I'm sure they had some big technical hurdles. I mean the entire game runs upscaled, and the assets are stored at half the vertical resolution so that they would fit on a CD. But people were making fast and slick games at the time of AO, there is no technical reason why they didn't do
that.