a kilo loss of bodyfat makes a huge difference, whereas gaining a kilo of muscle is kinda meh
Um... no?
It would be so in your hypothetical example IF you completely ignore their strength levels.
But in reality, the 70 kg guy with 10% bodyfat would likely squat 130 kg and the 90 kg guy with 10% bodyfat would likely squat 200 kg, assuming they have the same structure, nervous system and squatting movement efficiency/experience.
In fact, I would argue a few kilos more of muscle mass plays a bigger role than the same kilos of lost bodyfat, since the muscle mass is able to produce 3 times its weight in additional force. Bodyfat does not reduce the load on the body by 3 times it weight, but by 1 time its weight.