Diki,
I agree with your hypothesis for stereo reproduction in a small room. However, the same configuration in a large hall will not work--I've tried it many times, and with really high quality gear.
As for it's popularity over these many decades, I sincerely believe the reason behind this is because of its unique sounds. Somewhere about 1960 I purchased a Motorola stereo that cost about $300, which at the time was a couple months pay. Then I purchased some records, which I still have, recorded by Ferante and Tischer (spelling), and a few other artists, folks that provided the most incredible piano performances I've heard at any time in my life. The stereo effects they used were fantastic, far beyond anything I could have imagined. I loved they way they ping-ponged the sound during the song "Flight Of The Bumble Bee." It was just incredible. That said, they could have only achieved this effect while playing live with two pianos spaced about 50 feet apart.
Most of the larger bands I heard, and one that comes immediately to mind is
The Hubcaps , perform with a vast array of speakers, and it's all in mono--not stereo. Their sax player plays through a mic that is fired through a mixer, then the sound comes out of all their speakers at the same time. Same with the guitars, keyboards, trumpets, singers, etc.. You would think that if stereo was beneficial to their performances, which are quite expensive, they would be using it in a heartbeat. I've seen their system, talked with their soundman, been to three of their performances, and they really rock the house with a MONO system.
Jimsax's main issue with his Bose L1 was the pianos. He just didn't like the way they sounded, even when I tuned the system for him and made it sound exactly like his other system's piano. It's not for everyone, but then again, no system is.
Cheers,
Gary
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Travlin' Easy