I think it has to do with multiple factors, the economy, the trend to make small toys, and possibly G4 being easier to hold for 4 year olds. Tho I think that last one is a little silly, considering I never remember having a problem with G1s when I was that age.
I don't collected G4 all that much because I've never got into the show, there's not a whole lot of characters in the toy line, quality is so so, they look odd, and I'm not a big fan of the smaller size.