The majority of their server users (SMB) will find a Mac Mini or Mac Pro a suitable alternative, especially since most probably don'e even have a server rack on site.

Enterprise is pretty much where it is important to have rack mountable servers, and this is an area Apple continues to choose to devote very little resources to. Well, outside their push for the iPad and iPhone. As you pointed out, I guess the amount of companies interested in OS X Server in a rackable unit is too low for Apple to care about now.

Server wise, the XServes were usually pretty far behind the rest of the 1U market. No option for better 2.5 inch enterprise drives, SAS as a "3rd party option", and no redundant fan options kept it from being a serious 1U box. And since they only used Xeon processors, they lacked the ability to compete price wise with the cheeper low end 1U servers from other vendors.

This does make me wonder what hardware Apple is using in their own data center out in North Carolina. Hackintosh servers? :-)