When the SE released, it was using the components of the then most recent iPhone 6S in a smaller form factor, the main appeal was not a cheaper phone (it was only $150 less at launch than the 6S), but a smaller phone with flagship specs.
It makes more sense to call this new phone the iPhone 9, since they skipped 9 and it is a replacement for the 8 as the low cost, older spec option. It isn't going to be a small flagship level phone like the SE.
I think you're glossing over something: when the SE was released, it wasn't just in a smaller form factor, it was in the exact same form as the iPhone 5S: same chassis, which meant a significant number of the same parts, the same machine tooling in the factories, the same packaging design. We can't really know one way or another, but I think that was a bigger deal for Apple than having a phone in a smaller form. Now replay that script but with parts and machine tools for the iPhone 8.
Apple has a history of this on both the developer and user side. The first few releases of OS X had a Classic Mode, which allowed Classic Mac applications to run. Until, at one point, Classic Mode was ended. Then with the Intel transition, we had Rosetta, which for a few OS X releases would allow PowerPC applications to run. Until, at one point, Rosetta was removed. Now we've had the same thing with 32-bit apps on OS X. For a while they've been supported...now, that's ended.
This is the same thing, more consumer-facing. They supported a 4" form factor for a while. They stopped making new phones of that size, but the SE was there to use up back inventory and to coincidentally come in a smaller form factor. But the time has, evidently, come to fully switch over to the larger screens. One could argue the original SE filled two roles: smaller handset, lower-cost handset. One of those roles has been deprecated. I'd still say from where I sit this is an SE 2: old chassis, upgraded chip (and camera, maybe?), in some ways on par technologically with the flagship phones (for a few months, anyway). That, to me, is an SE.