The trash would take up less space if it was in a container, so I don't think that argument makes sense. Container is probably cheaper as well since it is less work to empty.

Just looked at New York in street view and I see trash bags lying on the streets taking up parking spots, a small container would take up less space.

The first part yes, the second part mostly no. It would be an immensely complicated project, well into the 10s of billions, to do this in New York, and most New Yorkers actually don't mind living in filth.

As a project, it will take a mix of parking, road space, sidewalk space, and bike lanes.