Spent a little more time on this. Don't know if I find frame capping Returnal really helps. Something weird going on. But I did discover my gsync might not have been working correctly, or there was some odd behaviour in the game. For one, if I turned on the gsync indicator in the nvidia control panel, I had the gsync indicator in the top right of my screen, but special K said gsync was enabled but inactive. I also noticed that under display it said MPO planes were not supported and had a warning icon, or something like that. So I went into nvidia control panel, started playing around with the gsync setup and a whole bunch of stuff like the display output. In the end, I just ended up back with the same settings I had before, but somewhere along the way those issues were fixed? I have no idea why, but now special K says I have working gsync and tracks the refresh rate, and MPO planes are supported and show 4 active. Game looks considerably smoother, but there's still some hitching in the game and my framerate is all over the place, but stays above 120 at my settings.
In terms of special K, I decided to inject the newest DLSS 3.7.10 from Diablo 4 and use Preset E and I think it looks much better. Returnal had 2.4 or something like that. I'll probably play around with frame capping again, but overall I got things working well enough.