If a user loses their phone, I think they have a lot more to worry about than a few missed WhatsApp messages anyway. I don't think this is a "common sense" compromise that WhatsApp made here, especially in the context of them promising end-to-end encryption.

It's kind of like that other nonsense tech companies are doing these days, by supporting U2F auth, but then requiring you also set-up SMS auth in parallel, so that "if you lose your U2F key you can go back in with the SMS"

Yeah, except that completely eliminates the point of using a U2F key in the first place, since your security would be no better than when you're just using SMS auth.

Or we can go back to "security questions", which I think most agree now are just not worth it, despite the fact that they can help users "recover their passwords".

If end-to-end encrypted messages can be intercepted through this, then WhatsApp shouldn't be offering this feature. The downside is much greater than the upside.