I don't think the gauges were much of an issue for passenger trains, after all there were many running across Europe (Orient Express etc).

It's probably more that distances were shorter, the crazy rich could afford an entire train, and the less-rich would use private luxury carriages owned by the railway companies.

Since the 1950s or so, the flexibility has been gradually lost as trains become mostly fixed formations for speed, safety etc, so that certainly explains why it doesn't exist now in Europe.