Console dev kits for major platforms never included game engines, and the primitives included with older console dev kits, if any, were often ignored because more custom versions were required to get the desired performance.
What's happened to the console ecosystem is a whole bunch of different things. More accessible tools (e.g. Unity) and platform holder development programs have gotten more developers who are less experienced and not as well funded onto the console platforms. Availability of easy online patching has lead to physical releases, which have to be finalized months before the actual release date, being intentionally left incomplete, with gaps to be filled in by a release day patch. Changing technology cycles have made console generations blurrier. And yes, online DRM has become a thing, although I'm not sure that's quite as onerous in practice as you suggest; it's not like current consoles just refuse to run any games while offline.
That's not an exhaustive list. The appeal of consoles is what it has always been, they're still the easiest and cheapest way into modern video games. But it's true that some of the advantages over the PC platform have begun to erode.
What's happened to the console ecosystem is a whole bunch of different things. More accessible tools (e.g. Unity) and platform holder development programs have gotten more developers who are less experienced and not as well funded onto the console platforms. Availability of easy online patching has lead to physical releases, which have to be finalized months before the actual release date, being intentionally left incomplete, with gaps to be filled in by a release day patch. Changing technology cycles have made console generations blurrier. And yes, online DRM has become a thing, although I'm not sure that's quite as onerous in practice as you suggest; it's not like current consoles just refuse to run any games while offline.
That's not an exhaustive list. The appeal of consoles is what it has always been, they're still the easiest and cheapest way into modern video games. But it's true that some of the advantages over the PC platform have begun to erode.