there is a lot of work involved in adapting a design like the Core 2 Duo to a new process tech,
and the C2D lacks a lot of what is considered standard today, they would need to integrate also things that were on the chipset (NB and SB), and in that case keeping the FSB around wouldn't make much sense, they would need to add so much new stuff that it makes more sense to build something else more optimized for the task
also the more current Atom family is not far from the C2D performance, it's actually faster in some cases,
look at the Celeron n4000 (variable clock up to 2.6GHz) vs an e7300 (2.66GHz fixed)
very similar performance, but the "Atom" (Celeron n4000) is seriously low on power (6W TDP) and has modern IGP and other features included (PCIE, Sata, USB and so on)
and that's from a few years ago