Russia can't afford an all-out war, not now where Western powers getting involved is a given. Putin is upping the ante until he gets some concessions in negotiations.
I believe Putin hoped to sneak into Ukraine (and gain access to trade routes as well as oil) while the western World was distracted by Omicron panic*. And for the first week or a bit longer it worked - I tried unsuccessfully to find any reporting on the crisis in German or British newspapers, because they were all about Omicron. But then Omicron did not lead to societies' collapse, and the reporting on Ukraine started, and western politicians started to react before Russia had made their move stick.
At the same time, Putin can't afford to be seen as backing down from an interior politics point of view, since his power is built on a "strongman" brand. So now he is piling bullshit demand upon bullshit demand ("Russian veto power on new NATO members"), so that in a "compromise" he can get at least some point through and claim to have vanquished the West.
So why should the West give something to him? We have covid, we have climate change, we have the supply crisis. The last thing we need is an unstable Russia that has a Putin succession debate. Putin may be a villain, but he is a known and reliable commodity of a villain, so from my point of view him being in power is vastly preferable for the time being.
*A tactic called "burying" - like pushing a tax raise through parliament during a sports final.