> But if the lens miniaturised so does the rest.

Not necessarily. I recently looked into miniature cameras for self- built drones.

For less than $50, you can get a package with a lens that's maybe 2-3mm across. The entire sensor+lens unit is roughly 1cm cubed. But then you need the electronics to process and store the image, and you're up to credit card size. And then you need a battery, and not a tiny one because that image processing draws quite a bit of juice.

There is a diffraction limit, which is not very small for visible light. Making a pixel grid that would resolve very tiny details may be hard.

OTOH the light sensor needs not be as small. Imagine a thin optical fiber with such a lens on one end, and a large lens and large enough camera on the other end. In could immediately make a better and less invasive endoscope, e.g. for surgery.

That already exists - the term is "capsule endoscopy" if you want to find out more. But -- it is a big pill to swallow. A smaller and better camera could both make the experience better for the patient and improve results, so this is still a good step to improvements.