Adding more ground stations and building more satellites does reduce latency, because there will be a satellite closer to "halfway between" you and a ground station, which defines the shortest possible path.
If there is just one (non-stationary) satellite in your sky, the geometry is probably pretty crummy, so light-speed delay is greater. Also, link budget is worse, so probably data rate is lower too.
Yes, once you have a ton of satellites, adding more doesn't improve latency much.
Having more satellites lets you communicate in a straighter line. Lower altitude lets you hug the Earth more closely. Higher altitude lets you see more neighbors. I'd wager the low altitude satellites are for last mile communication moreso than global linkage. I mean, otherwise they'd have no use for the higher altitude ones? An optimal low latency link around the planet would mostly alternate low-high-low-high-low in sequence, if there aren't enough low altitude nodes to use them exclusively. But maybe you could crush this argument by doing the actual math in this case.
You are referring to the ISL in these satellites, that are not in the first batch, nor are there any plans to change that soon from what I've seen. So without the ISL, their latency is certainly not lower by adding more satellites. The difference in latency from different altitudes LEO is negligible.
It makes a difference there, sure, but SpaceX lowered orbits from 1,150 to 550km. Half the latency, but only by about as much as traffic between LA to SF incurs.
I was a bit wrong in my initial estimate. More satellites can't improve latency by much once they get dense enough, and it looks like Starlink has enough such that the altitude would be on the same scale as distance. Still doesn't matter for the typical home user. Like, I get 21 ms ping to servers in my local city.
The funny part is that by providing low latency service to them, they are (hopefully) going to be able to fund SpaceX longer to build rockets to get human colonies off-planet.
550km vs 1,150km might not matter, but it matters a ton vs 40,000km. Even without the bandwidth limits, I wouldn't be able to use geostationary internet for my normal usage.
Starlink has been LEO since it was first announced, so how bad geostationary internet may be is not relevant to the discussion about why SpaceX lowered the altitude.