Do you have evidence for this, including that those customers have been lost rather than making a connectional journey via Euston, MKC, Brum or wherever?
I never saw loads of people getting on or off VTs at Watford, except for when the Southern services were Watford to Clapham only and the 0700ish VT from MKC connected into the main one for getting places sarf ov da Rivva before 0900.
MKC, of course, is (a) not only used by people who live in the Unitary Authority of Milton Keynes, and (b) only has 3tph VT for most of the day (one Brum-Scotland, one Manc, one Chester/North Wales) anyway.
Agreed, LM should not do anything with the 350s that would be to the significant detriment of that primary role. An additional 1846 would mean taking 4 coaches off another peak service, which would not be acceptable. If the Trent Valley service could pay at higher fares, perhaps an additional unit (a 319 maybe?) could be leased to allow it, though.