In a way it sounds like the the military demands stopped the shuttle from being a total turkey. I'm not sure how a small capacity would of really helped things unless I'm totally dense this morning.
Or was the intention to use the Titans etc to do the heavy lifting the shutttle would then launch and do the final work in space?
With the smaller designs, then yes, use expendables to launch big cargoes, including space station modules, and then the orbiter would have been a genuine shuttle, carrying a crew of maybe five plus the contents of a smaller payload bay up to the station (or on solo missions).
It might seem limited, but it would have been able to carry more crew and cargo than Apollo (the payload bay could have carried small station modules, akin to Kvant on Salyut 7/Mir), while being fully reuseable (the other half of the system being a flyback booster stage). And there would potentially have been the option to launch large unmanned payloads by attaching a second stage to the payload and launching that from the shuttle booster (akin to Shuttle-C, or the first test of the Buran launcher Energia with an unmanned satellite as payload).