My kids have a ton of legos, it's their favorite thing. However, and this is the important part: you have to let go of the concept of a set.
Keep new assembled kits out, let them play with it as built from the instructions. But then as it falls apart with play, and the kids don't fix it the same way it was originally built, it eventually goes into a big box of former kits that are all jumbled together.
We did this, and without prompting to do so, the kids started building their own things out of the box, exactly as you did with your kits.
You just have to learn to let go of the set, and it becomes exactly what you want.
Edit: I'm not sure if a $800 set has that same property, but for the everyday $5-$40 sets, absolutely treat them as temporary collections, and life is great.
I have an anecdote about doing exactly that. Always was a LEGO kid (first set I got was bought 3 months before I was born) and slowly over time collected a giant bin of pieces from all the various sets. Now as a much older adult, I actually find myself going back to that bin on occasion to sort out the parts and try to rebuild the sets. Much like how that big bin of parts let me build stuff from my imagination when I was younger, as a form of therapy, now resorting those pieces and reorganizing them is a new form of therapy for myself, and it all comes from the same toy.
I find it particularly endearing how a single system of toys can provide decades of experiences to a single human. I don't think I've ever encountered another toy that is like that on such a massive scale. Yes there's other construction toys out there that strive to do the same, Knex was another one that I was into for a while, but there's nothing that quite scratches that same itch that Lego does.
This is exactly how it happens at my house. I purposely stick to to the $20-$40 boxes for this reason. Over $100, that's not a toy anymore for me. That price range becomes a collectors figurine.
Yes. I got somewhat stuck on the idea of the sets being kept together, partly because I thought it would be good to pass on used ones with the manuals.
But I found that if the builds are out they will be played with and fall apart and eventually become loose legos and that’s all fine and good.
Loose Legos on the floor making random things is fun. But building with sets and instructions is a different skill set and is entertaining in its own right.
The newer Friends series has a short reward video at the end of some builds which sort of puts the cherry on top of the set builds.
I have almost all of the $400+ star wars sets (and lotr, and star trek, ...), but relatively limited shelf space.
They only stay on the shelf for a couple years before I take it apart, rinse the dust off, sort it into ziplock bags, and add it to a box in the closet. Then I pick an old one I disassembled before, but hasn't been seen in awhile, or remember having fun building it, and spend a weekend or week building it again.
My favorite part is building them, so I get to enjoy doing that several times per set, often while having the corresponding movie on in the background.
Yes this, I bought sets like the Arctic Ship and police bases thinking they'd be like dioramas. They quickly became components that they build other things on top of. It took some time to mentally un-anchor from the $500 spent on the sets lol.