Multi-megabyte memory expansion cards for ATs absolutely WERE a thing, including more than a few sold by IBM themselves. I recommend having a scoot around the various document archives of the interwebs such as Bitsavers, Google Books' back catalogue of Byte / Infoworld / Computer Shopper etc, and various others whose names/URLs I forget but that frequently feature any time I do an arbitrary google search for information on some old bit of hardware. Simply dropping "PC-AT memory expansion card" into the search bar will probably get you endless hits, if you bother to do it.
SIMMs may have been invented in 1982, but that doesn't mean they were immediately adopted in any great way. The Atari STe was one of the first mainstream proponents of the idea that I'm aware of, and that dates to 1989. I've a slightly earlier (1987/88, I think?) AT-clone in my collection, that a family friend gave me wayback, and it has a grand total of ... two. Just 2x 30-pin SIMM slots, and they don't support any module size other than 256KByte; having filled them, and expanded its onboard memory from 640 to 1152KB, it'll just about boot Windows, but what you can do with the system once you've loaded it is pretty limited ("Write" will run, "Word" and "Works" won't), and it's a damn good thing that the video adapter has its own memory instead of having to share it with the rest of the machine. If you wanted to use any more sophisticated software with the machine, then your only recourse would be to add memory cards. Motherboards sporting a meaningful rack of SIMM slots, and that supported the larger capacity (and, at the time, still deadly expensive, especially compared to SIPPs, or the lower-frequency DIPs used on the expansion cards) 1MB and 4MB modules, were rather more a 386-era thing, or at least later-286.
Compare it to the 3.5" diskette drive. That was already a thing since, what, 1983, 1984? It also pre-dated the PC-AT. IBM, and PC clone manufacturers in general, didn't adopt it as a format, outside of portable machines, until the debut of the PS/2, many years later. It might have been there as an option, and even used (alongside other competing compact formats like the 3" flippy-disk cartridge as beloved of Sinclair and Amstrad) by a good number of rivals from 84/85 onwards, but it doesn't mean the 5.25" format was immediately obsoleted by it. Indeed, 5.25 was the first to get HD, and remained the larger-but-higher-capacity option (at 1200KB vs 720 or 800KB) until the even higher tech 3.5" HD floppies came along nearer to the turn of the 90s.
Or indeed... CDRs and other removable media didn't disappear when DVDR came along. USB didn't immediately displace all other interconnects (THAT took ages). Integrated graphics and sound, or indeed floppy/hard drive controllers, serial/parallel ports, etc, didn't completely do away with discrete add-on cards. Often, much like those two lonely low-capacity SIMM sockets, the early examples of the form were rather limited compared to what could be achieved with a dedicated, if rather costly and bulky, optional upgrade card, and were only really meant as a low cost, get-you-started convenience option. A lot of people don't need anything better than integrated graphics, but there's still the option for installing a dedicated GPU if you want it. Or a RAID card to expand your storage options beyond what the built in controller can do. At the time "my" 286 was made, Windows was still a novelty and even competing somewhat with lower-requirement things like GEM and DesqView; most of what the machine ran (indeed, all that it originally came with) were DOS apps, which for the most part worked just fine with the original 640KB. Adding the extra half meg unlocked a few nice additional features, like using WYSIWYG fonts in Lotus Symphony, but I never really got the impression that the computer was crying out for anything additional to that until I tried it with Windows. There aren't really any games which demand greater amounts of memory that don't also want a better processor (and, until I added the SVGA, a better graphics card). Most home or office buyers of the system would have been satisfied with what it offered, and if they found it still limited - say, they actually wanted to use it for some kind of heavier business or scientific analysis or industrial purpose - could have just used one of the several open slots to add a memory card, and been able to make a business-case justification for the expense.
And, as we were speaking of video cards... that aforementioned 286 clone came with a Hercules Mono card installed; before I added the SIMMs, its total memory complement between system board and video was only about 704KB. It didn't have much advantage over an XT other than a good extra turn of speed (having the 12MHz option), a larger hard drive (40MB), and better compatibility with later software (how much of what was installed on it wasn't still XT compatible though, I wouldn't want to guess). After some dumpster diving salvage runs at my old school, it gained an arguably over-the-top half-meg Trident SVGA card, as well as a Soundblaster Pro (sadly, no Gravis Ultrasounds or AWE32s to be had). AGP and its addressing "window" being more than a decade away, that memory is directly mapped into the machine's architecture, and I expect the SIMMs probably sat above the 1MB boundary too; I dunno if the soundcard has any usable RAM to speak of, but even so the computer likely has RAM mapped to at least 1.75MB logical, maybe even blocked out to 2MB to simplify addressing. On top of which, the 640 to 1024KB "hole" is typically joined by another at ... either 14 to 15, or 15 to 16MB on typical ATs (I forget which), allowing a wider range of extended BIOS ROM and memory-mapped IO on expansion cards, alleviating some of the pressure and conflict that could be experienced with everything vying for shared use of that 384KB block (and allowing things like the mapping of the "high memory" area out to 768KB or more of usable sub-1MB RAM in later versions of DOS).
Using a VGA card on an XT class machine can be quite tricky (and likely one reason for IBM creating the weird, crippled MCGA... its lack of EGA compatibility is inexplicable, but its limited memory is likely so it would fit within the 8088 address space on the lowest-end PS/2s without having to resort to complicated memory paging routines such as were needed for operation of over-1MB XT memory cards), and a lot of the other stuff above, probably including use of any kind of SVGA (or at least, anything over 800x600 16-colour - which just skims inside of 240KB), would be entirely impossible due to the more limited addressing range for both RAM, ROM, and mapped IO.