> And doesn’t this whole thing break with practical realities, such as processes needing to interact with each other ?

There will always be advantages and disadvantages to all of this. But the general idea is to protect the "core" OS, and for that virtualization is superior to anything else you could try really. Android and iOS are already built to isolate apps from one another. ChromeOS uses Crostini to run Linux programs in a VM, etc.

> without increasing friction

That's always the compromise with an Antivirus, isn't it? The logical thing would be to build password managers into the OS, or maybe even to handle them differently. As they are already done in Android and iOS today.