To swap memory to disk, you still need address space to map it to. Say the editor has allocated 3.4GB, and then makes another 600MB layer, allocated at roughly 0xD000000. With no address space left, it asks for another layer, and the allocator returns NULL. It can't give you a pointer to a 600MB region, because there's no address space left. If you paged out the layer at 0x20000000, that would not help, because it wouldn't magically free up the addresses 0x20000000-0x40000000. They would just refer to pages that are currently on disk, and still be 'occupied' address space. You still need an address for this new allocation, and there is no room to put it.
No slow degradation -- it won't page fault at all unless you otherwise fill the RAM on the machine. So the image editor just falls over, with an uncatchable OOM exception I presume, with no perceptible warning from page fault slowdown just prior. It will go full speed into the brick wall. For your account to be accurate, V8 would have had to implement their own virtual address space, which they have not. VA basically requires a hardware TLB to be fast, and V8's "TLB" here is just `mov eax, [whatever]; and rax, r13`. Anything other than that would have completely defeated the speed gains from locality.
This doesn't account for nuances like whether ArrayBuffers would be allocated elsewhere and have no pointer compression applied, but it's definitely true of general objects. For a regular JS program to fill 4GB with normal web app things would be a miracle, and the image editors of the world can probably still work if they make the big-allocation APIs use full-size pointers.
But the rendering pipeline of PSD documents is extremely complex. There are not just layers, but also layer styles, raster masks, clipping masks, adjustment layers. Folders of layers can have their own layer styles and masks. You need to allocate separate buffers to render "sub-trees". And everything is GPU accelerated (over WebGL).
I am afraid that remaking it to a mip-mapped system would take me like 1 000 hours of work, so I think it is easier to remake V8 (which I guess could be like 100 hours of work). As the usual capacity of RAM will keep growing, they would have to do it at some point anyway.