I believe a drop-in replacement called Bulletproofs is being developed to reduce the transaction size. It's been a while since I looked into what else is being worked on.

Smaller transaction sizes with adaptive block sizes seems like a good scaling solution. Is there something I'm missing?

The fee in terms of XMR actually reduces when there's more transactions. However if its value in terms of USD rises, then the fee in terms of USD still might go up with more adoption. Perhaps that's something the developers can adjust in their regularly-scheduled hardforks.