The iPhone 7 still carries the flag for price conscious customers today, even if it is more expensive. The SE was a very unusually strong low end value proposition by Apple standards at 349 dollars for the 32GB handset, and I suspect this _much_ more than size mattered. Cheap small sized Android handsets have never really sold in remotely meaningful numbers in recent years (and Sony made some resonably solid designs), which gives me further pause as to how well "small" as primary feature sells now.
It is definitely a shame for those who did value the SE for its size, but iPhones are unabashedly mass-market devices, and for better or worse bigger appears to sell. I do think an imaginary SE design with the full size screen design of the X with FaceID etc would be a gorgeous looking little device though...
Edit: I was wondering if an Apple Watch / iPod Touch combo could be an option but it seems they don’t play well together.