"Normal world" knowledge often does play a part, but more than that I think part of the draw of isekai stories is that the audience can more easily empathize with a character originally from our world trying to make sense of the fantasy they find themselves in than characters who are from the fantasy world and thus don't find the setting particularly special.
It's not like straight fantasy stories have died out, though. In the current anime season alone you have Sousou no Frieren, Goblin Slayer, S-Rank Musume, and Mahoutsukai no Yome—and no doubt several more—where the protagonists are native to their respective fantasy settings. That's not even counting ones set in fantasy VRMMOs, which aren't exactly isekai either.
Except it's not even that indirect. The government of Texas invented this novel class of private liability, and their courts are the ones enforcing it. That's the same as banning it themselves, and blatantly unconstitutional.
I'm a bit surprised they didn't implement this as a tax. That would be just as bad, but the federal government has a long history of imposing punitive taxes on things they aren't allowed to ban; it would have been harder to fight it that way without forcing an overhaul of the entire tax system… and politicians are so very fond of special-purpose taxes and credits.