If you restrict transactions to 1mb, then you can scale linearly from the current worst case.
What do you mean by "restrict transactions to 1 MB"? Restrict the maximum size of an individual transaction to 1 MB?
Bitcoin unlimited is running a testnet with 10mb blocks and they aren't even close to straining decent desktop hardware.
I highly suspected that they are testing normal 10 MB blocks, which is obviously the wrong way to test stuff. Otherwise, that statement wouldn't hold ground. At 10 MB, with quadratic validation time, you could reproduce a block that requires a ridiculous amount of time to process.
Bandwidth usage can be high, but 20mbit/second is pretty easy to come by. If you have less, you can serve fewer nodes but still provide more to the network than you consume.
The problem isn't the speed, the problem is the amount that you spend. Even at 1mbit/s, you can have 40-80 connections (again, source: my node). However, do you really think that you wouldn't be throttled down very soon considering that they'd probably label this as "not fair use"?