Depends on the eccentricity of the orbit. There are plenty of orbits with higher energy than a typical LEO where the perigee is in the atmosphere, and where at typical LEO altitudes the velocity relative to earth’s surface is actually higher than a stable LEO.
I don’t actually know exactly what trajectory they’ve been burning to, though, so maybe they are still going a bit slow. Still, the idea that they aren’t actually testing orbital launch capability and reentry because they’re only going halfway around the planet is inaccurate. The difference between a trajectory that takes you halfway around the planet and one that takes you all the way around is minuscule, as any KSP veteran can tell you.
Because the way they’re doing it, if shit goes wrong and they lose control of Starship, or if the engines don’t relight, or whatever, it will still splash into the Indian Ocean relatively harmlessly instead of being a LEO hazard until its orbit decays enough to re-enter gods know where, survive reentry, and potentially hit something someone cares about when it piles into the surface.