I think this thought is extremely on point.

A lot of older unix abstractions have been heavily broken when we all started running tens, hundreds, or thousands of vms on the public cloud. Users are relegated to IAM. Most databases can't even fit on a single server. Many webapps are load balanced to begin with.

The classic monolithic 'server' named Mars or Jupiter outgrew itself cause we all were consuming so much software. So part of what we are asking here is why do we have 2 layers of linux? We have the underlying one for the hypervisor but all these legacy abstractions are still present in the guest.

Because hardware is easier to safely and completely virtualise. It's a relatively small surface compared to the entire OS API.