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Because most people on a day to day basis don't give two shits about this type of internet drama over third party API's as long as they have their entertainment that suits their needs and it's still easy to access and provides them what they want at a price they're willing to pay.
Most people who are using social media aren't tech people who even know what a API is much less care and most people don't care about whatever app they're using to access social media as long as they have an app. As for mods, let's face it, they weren't and aren't going to give up their little slice of power over an API in the long run, on reddit and here.
Also, while you say reddit has gotten even worse, which is a subjective opinion that you and most of us all share, their stuff still works for the users at the end of the day with their extremely large user base and still thriving niche communities which lemmy just does not have due to the much smaller user base.
I think most of this is spot on, but the hearsay was that the subreddits who did participate in the shutdown were threatened with an ultimatum, which while I don't think is possible to prove either way, hints that it would have happened regardless. Tho I'm usually all-too-ready to don my tinfoil hat when it comes to reddit trying to look appealing to investors; I witnessed a number of hentai/porn subreddits get banned and users actively request to become new mods only to be ignored.
Even if you discount the mods, there's definitely a certain inertia you see in groups like this (like what's going on with Discord right now) -- people don't want to leave in part because they've got their little in-group and don't want to have to go through finding or founding a new group elsewhere. I think it's particularly prevalent with those niche communities that don't ever really break containment; the community would already be small enough without fracturing to the eight winds. I'm liking Lemmy so far but as I am trying to drum up activity in one of those niche communities (RWBY), it's kind of disheartening how little relative traffic there is across the place.