Richard,
You are correct. IBM never intended DOS/VS, or OS/VS1 or OS/VS2 Rel. 1 as a long-term solution; they were a "first step" into the world of virtual memory. Having 16 MB of address space total available greatly alleviated many of the problems that DOS/360 and OS/360 suffered from, with typically less than 512K of core memory for DOS/360, and less than 1 MB of core for OS/360. This was especially troublesome for MVT, where running many jobs with different region sizes would end up fragmenting whatever small amount of real core memory was available; and this problem was so bad that it often required an (unplanned) IPL to "fix" it.
IBM first introduced the S/370 product line without virtual memory. Once the decision was taken to offer models with DAT, IBM had to scramble to convert DOS/360 to DOS/VS and OS/360 MFT to OS/VS1 and MVT to OS/VS2.
VM/370 and OS/VS2 Rel. 2 and above (MVS) really began to show the potential of virtual memory with multiple address spaces. Of course, it took IBM a few more years to get MVS to "settle down" -- Release 2 was unstable and even Release 3.0 had issues; it was not until MVS 3.6 and 3.7 that it settled down by the mid-1970s, and then we started to see larger numbers of shops converting to MVS.
Even so, DOS/VS and OS/VS1 and SVS remained quite popular for far longer than I think IBM ever anticipated.
Mark
