What you write makes a lot of sense, the 737-400 with its 170 seats was less attractive for LCCs/charters who prefer either 149 or 199 seaters to get the maximum productivity from the flight crew.
But don't forget, with some airlines operating fleets of over 100, this differences can also be the result of a choice of a handful of airlines. Let's just focus on some major 737 operating airlines why they ignored the 737-400;
United; they badly needed an aircraft, lighter and cheaper then the 757, to replace 727s and with (almost) transcontinental range. The A-320 was the better choice for them then the 737-400.
Lufthansa; bought a handful 737-400 but already heading to an A-320 narrowbody fleet by the time it came out
Continental; interesting, the 400 and 600 are the ONLY 737s they never flew. I guess they wanted to simplify a bit and get the DC-9s, 727s, 737-100/200s and MD
-80s out, they focussed on smaller and bigger aircraft, only needed the 800s later in the 1990s when they came out to replace the last 727s and MD
American, Delta and SAS; hold on to the MD
-80/90 for the 140-160 pax segment til the 737-800 came out.
Boeing also got a lot of new clients who weren't in the picture re. the -400.
Ryanair; jumped straight from 200s to 800s, weren't financially able enough yet to buy new aircraft in the earlier 1990s. Gol, Virgin Blue, Westjet are too new.