The trend towards smaller cameras arrived around the same time cameras became capable of much higher resolutions with faster frame rates. The combination of compact designs and high-res, high-speed capabilities has created a key problem: Heat dissipation.
Of course, with the issues of heat, the tech has arrived to solve them with options like active cooling and heat sinks. But these add to the bulk of the camera, which means very few point-and-shoot cameras have them. One notable exception is the Canon PowerShot V1.