Because by the time train extensions were mooted XC was already haemorrhaging money.
Although if they could have had longer trains they may have managed to not have been losing quite so much. As although they would have higher lease costs and high track access charges, the number of passengers would have also been higher. However with many fixed costs (i.e. head office, number of divers, etc.) not changing with longer trains the cost per passenger should (if it worked well) have gone down, resulting in the subsidy potential not being much different from what it was for very long with good chance that over time it could have dropped.
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Because it would appear to be DFT Policy to provide not quite enough seat for the expected number of pax 10 years ago, never mind now! A policy which is now being reused with the new IEP Order!
IEP on East coast is resulting in an increase in the number of seats as a full 9 coach set of IEP will have 627 seats compared with the approximately 550 seats of the IC225's (a 14% increase), without the need for extra paths.
Although this is no where near the projected passenger number for 10 years time (where these could have increased by 28%) there is still the possibility that some of the IC 225's could be retained on the ECML to cater for this growth (subject to available paths).
In fact the only way to cater for such growth would be to undertake infrastructure improvements to enable more trains to be run.