Can’t help but wonder wether this is a nationwide thing against smaller trains. Operators seem to now order trains at 12-cars rather than 3 4-cars for example. And if you look at GWR and EMR withdrawing their 153s, maybe the 466s fit into their pattern. Makes more sense to have a longer 707 then a 465 coupled with a 466.
With rising passenger numbers (up until last year) there was certainly an element of there being less of a need for lower-capacity units... but a big part of it is the requirement for universally accessible toilets: as these toilets take up more space, they eat into the space for passengers to occupy. The shorter the train, the greater percentage of useable space lost.
There's arguably still a niche usage case for a 2-car EMU such as a 456 or 466, eg Bromley, Sheerness, and Guildford to Ascot off-peak... but with 3rd rail you're also increasing the risk of gapping, and with electric units there isn't the same cost penalty to adding a third vehicle that there is with diesel units.
As for Networkers to Southern, that's one of those things that makes more sense in theory than in practice. Had BR continued, a further build of Networkers might have gone ahead to get rid of the last VEPs and may even have found themselves on the Coastway, but the reality is that there isn't a huge benefit in replacing 40 year old trains with 30 year old ones. Newer isn't always better, such as when the aged but adequate heritage DMUs were replaced by Pacers... or when those same Pacers were replaced by older but more pleasant 308s.