Buyers of rackmounts require a totally different kind of service. It's not just about the iron, it's a largely separate operation from the consumer PC business. You don't exactly take your Xserve to the Genuis bar...
There simply isn't enough demand for Xserves to make it worth the investment for Apple. (As far as I remember, many companies that bought the original Xserves phased them out again because Apple couldn't deliver that kind of service.)