My gut feeling is that there's something going on here with dueling priorities between (A) the best editing experience with a plain text editor vs. (B) the clearest storage format. This leads to things like "too much inlining" or "too much duplication".
In contrast, imagine relaxing the everything-in-notepad requirement, imagine a renderer that can easily display cross-referenced materials in a readable way. Or a step beyond that, an editor which also gives you "jump to definition" etc.
That change permits a much more internally-consistent XML file, such as one where "materials" and "steps" are separate sections, and any step can references a material that is being used as input or output, with something like .