They didn't entirely. It is still maintained, developed even.
> It would seem to be a potentially useful middle ground between docker containers and KVM VMs
Back in the day I actually used it that way for running “VM”s and some firms even sold VPS accounts based on UML. Back then other virtualisation options were not nearly as mature as they soon became, or cost proper money (IIRC VMWare was good by that point but there were no free or reliable OSS options yet), and UML offered better isolation (a full environment including its own root) than simply chrooting a process tree (fuller containers were not a thing back then either, so all users fully existed on the host and you couldn't give out root access net.).
These days things like KVM and more advanced containerisation solve the problems most people want UML for and do so much more efficiently (UML performs badly, compared to other options, where there is a lot of kernel interaction, including any filesystem or network access).
UML is still very useful for its original intent though: testing and debugging certain kernel level items like filesystems (FUSE is competition here in many, but not all, cases), network drivers & filters, and so forth. When things go wrong you can trace into it in ways you can not (as easily) with VMS and containers.
