Your second paragraph is your memory, but its not what it is now. Empty servers? what about "hide empty" checkbox in serverlist? Or your praised Join Now button finding server with high pop?
Server lagging-disconnecting? Are we in 1995? Most current servers are on par with official. In fact, I more often encounter connection issues in games that only sport Official servers, and the fact that I just cant join different server sucks.
Hacked server galore: Thats the issue with official servers too. Frankly, people devoting time and resources to host a server for their favorite game dont do so so they can hack on it.
"If you were in the 'in-crowd' you had the passwords to servers where the hardcore players hung out and had fun - and you were in the 1%." --- wwwwwwwwwhat? What planet you from?
Citation needed.
An honest test would be to release a game with both options. Might be hard tot count the decentralized players though.
There was a big backlash in the community when matchmaking became the norm. I actually "boycotted" Call of Duty MW2 when it launched because of the lack of server support.
As I remember playing in a self-hosted world was one where there were hundreds of barren servers, servers that disconnected mid-game, servers that randomly lagged due to bad internet and unknown server hardware (often shared with the game client) and hacked server galore. If you were in the 'in-crowd' you had the passwords to servers where the hardcore players hung out and had fun - and you were in the 1%.
The market wants free to play. No really. For every player that claims they want to put down $60 before even playing a game there are 1000 that won't even glance at your game if it isn't free. I can't even recommend $5 iOS games to friends and family without them turning up their nose because they only play 'free' games.
There is a vocal minority of games who feel like the games industry isn't listening to them and not giving them what they want. And they are correct, but the games industry isn't conspiring internally to screw those people, they are just trying to price games in a way that maximizes their potential to pay down development costs and pays for ongoing development and devops costs.