The resolution bottlenecks of early digital as described in this thread are not related to the loudness wars of the aughts. If you were doing big budget recordings back then you were either doing 2" analog or you had enough setup time to set gain levels carefully and "fill up the meters" for your digital recorder.
Recording close-mic'd drums to analog tape is actually a useful technique when maxing out levels because analog tape saturation can be aesthetically superior to digital peak limiting for shaving drum peaks — analog tape saturates high frequencies first. It wasn't uncommon to either record basic tracks to analog then transfer to Pro Tools, or even to track to Pro Tools then bounce the drums out to analog tape and back.
For the record, there were loudness wars back in the vinyl days, since it was seen as important to have your 45 rpm single "compete" with others in the jukebox. It wasn't something new in the aughts.
> If analog recording captured a much more flexible dynamic range
It doesn't, especially not in comparison to modern digital. Dynamic range is not a strong point of analog because of tape hiss.
The issue with low res digital is that truncation distortion is non-harmonic (not an integer multiple of the input frequency) and so is disproportionately aesthetically damaging even in small quantities — in other words, digital grunge sounds worse than tape hiss.
