In Ocean City Maryland there is a stand on the Boardwalk called Thrashers. They too use real potatoes and they cook them in peanut oil. No trip to Ocean City is without a stop there to get some fires. Like you say they do it all right there in front of you. They have a long line of people waiting.
But McDonalds and others seem to think they can fool the public with a poor substitute.
Ease of preparation probably has a lot to do with it. Its pretty easy to dump a batch of prepared fake frozen potatoes into some grease and hit the start button.
I am pretty sure with McDonalds they cant hire someone for minimum wage smart enough to cook a real potato. I dont go there often but last time I did they dont even wait for the fires to take on a Golden hue they get them out as soon as they start turning yellow. Half cooked.