The apparently very conscious decision to squash the 'interactive' elements in Wing Commander IV was a very, very odd decision -- it's one I'll never understand. The game was supposed to bring PC gaming to a Hollywood movie style audience... so why they decided to cut out *exactly* the elements the series had been praised for over the years (the hand on the cockpit, the stirring scramble scenes, the mechanic commenting on how much damage your fighter took, etc.) is beyond me.
They made two non-contradictory (but also non-supportive) claims regarding this specific decision at the time: one, that it would improve the performance of the game and two that their testing had proved that people just turned the cockpits off anyway.
I can believe the first, I suppose: Wing Commander IVs performance is marginally better than Wing Commander IV.
The second doesn't make a lick of sense -- of course the QA guys turned off the cockpits after developing a dozen of these games... and the same probably goes for the veteran players... but I can't believe that logic applies to the vast majority of people who would be buying the game.
Beyond that, I don't understand why this immediately became the *industry* standard. Wing Commander IV wasn't a great success... and I think even at the time a lot of people recognized that the cockpits issue was a mistake. So - why did it spell the end for all cockpits everywhere? Privateer 2, Freespace, etc. all came out with 'WC4' invisible cockpits. It's testimony to the importance of Origin to the market in the mid-90s... but I think it's also a case where developers completely lost sight of their audience.
There was such a bitterness about it, too -- you got the impression, from developer interviews and such at the time, that this was an amazing decision that everyone would love and that they were finally getting rid of those silly cockpits once and for all! I don't get it...
Compounding error upon error, Origin had managed to solve exactly the problems people have brought up in this thread in a much more elegant manner years earlier -- later Wing Commander games should have had a Strike Commander style virtual cockpit rather than the you-can-see-everything-for-no-reason HUDs they eventually wound up with.